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Tata Steel to hive off non-core businesses

Ishita Ayan Dutt

Tata Iron and Steel Co on Thursday unveiled Vision 2007, a strategy aimed at increasing the company's profit before tax to Rs 8-10 billion at the present level of investment.

The company seeks to become economic value added positive through an increase in efficiency and pruning of non-core or under-performing businesses.

Divestment, mergers and acquisitions will be part of the strategy to become EVA positive. Tata Steel plans to identify and divest non-core or chronically under-performing businesses. "We are looking at acquisitions," managing director B Muthuraman said.

"We will divest businesses which do not have a good EVA potential," he added.

"Bearings is underperforming compared to steel," he said. The bearings division of Tata Steel has an alliance with Nachi Fujikoshi Corporation of Japan. The alliance may be spun off into a joint venture.

The target of the firm is to earn a profit of Rs 4 billion, and produce 4.4 million tonnes of hot metal and 4 million tonnes crude steel in 2002-03.

"The target for this financial year will take the company a step towards being EVA positive," Muthuraman said.

By 2005-06, the company will achieve this, regardless of how the steel industry performs. The highest ever profit before tax earned by Tata Steel was Rs 6.02 billion in 2000-01, when steel prices were high.

"No Indian steel company has had a positive EVA and only a few in the world do, for a short period at that," Muthuraman said.

Tata Steel hopes to sustain the positive EVA, to be achieved through initiatives in each area of enterprise.

Tata Steel's weighted average cost of capital is 12 per cent and return on net capital 8 per cent. The company's capital expenditure for 2002-03 is budgeted at Rs 4.26 billion.

Tata Steel is in the process of identifying new areas, including those apart from steel.

"The new businesses will have a lower asset base, higher earning potential and quicker returns," Muthuraman said.

The company is also open to managing steel plants of other companies. However, he refused to comment on whether Tata Steel was considering the acquisition of Ispat's steel plant.

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