TATA STEEL (Thailand), the country's largest producer of long steel products, has set a challenging target of resuming paying a dividend next year, having not done so due to big losses since 2008.
Despite a continued gloomy steel market, Tata president and chief executive Rajiv Mangal told reporters yesterday that after successfully returning to profitable operations in the company’s previous fiscal year ended March 31, the listed steelmaker was striving to increase profits further to a level at which it could resume paying dividends to shareholders in 2015.
Tata would have to spend a total of Bt80 million in order to pay a minimum dividend of one satang per share to its shareholders.
Due to the company’s policy to cap its pay-out ratio at no more than 40 per cent of its after-tax profit, this means Tata would have to achieve earnings after tax of at least Bt200 million in order to resume paying a minimum dividend.
The steel-maker booked an after-tax profit of just Bt31 million in its recently completed fiscal year.
Citing the continued sluggish domestic steel market, Mangal said Tata would be happy to achieve 5-per-cent sales growth this year.
Rather, he said, the focus would be on further improving its EBITDA (earnings before interest, tax, depreciation and amortisation) margin from 4 per cent in the last fiscal year to more than 5 per cent this year.
A gauge of operational profitability, the EBITDA margin refers to ebitda divided by total revenue.
Mangal added that the spread between the company’s cost and selling prices was currently lower than last year’s, as the selling prices of its products were still going down while the prices of steel scrap – its main raw material – were surprisingly moving up.
Nevertheless, Tata is still on a “transition” path toward the goal of further adjusting its product mix to include a larger portion of higher-value products that offer higher profit margins, he said.
“That’s given us confidence that even though the market situation is bad, we will do better than our competitors and we ourselves did last year,” said the company chief.
In a bid to achieve an ebitda margin of higher than 5 per cent, Tata will focus on three major fronts this year: first, it will continue to conduct and expand tight cost management in its operations; second, it will ask the government to impose anti-dumping measures on low-carbon wire rod imports from China; and lastly, it will focus heavily on value-added products and services.
“Our sales of cut and bend rebar, for example, will increase by three times in the next six months, when compared to last year,” he said.
Seventy per cent-owned by India’s Tata Steel, one of the world’s 10 largest steelmakers, Tata Steel (Thailand) runs three factories with a total production capacity of 1.8 million tonnes per year.
In its fiscal year ended March 31, the company reported a consolidated net profit of Bt30.79 million, a big turnaround from a loss of Bt4.55 billion posted for the previous fiscal year.
Annual sales volume increased by 10 per cent to 1.298 million tonnes.
Commenting on the establishment of the National Council for Peace and Order, Mangal said the political change could be positive for the economy, which had had no permanent government to drive it since last December, as there would now be someone in charge to make decisions.
He also said Tata’s profitability would depend in some part on how Chinese steel companies reacted to the anti-dumping surcharges of 5-10 per cent imposed on high-carbon wire rod imports by the Thai Commerce Ministry since the middle of this month.
For example, if the move allowed Tata to increase its high-carbon wire rod prices by 4 per cent, it would help the company to increase its ebitda margin by 1 per cent, or Bt215 million per annum.
Nevertheless, he said the anti-dumping levy was too low and the company may appeal for the government to raise the surcharge to 14 per cent, the same level as the levy on flat steel products.