Tata Steel increases cash savings in March quarter 120% to Rs 11,500 crore to tide over crisis

Heavily indebted Indian steelmaker, Tata Steel is arming itself to tackle the post-coronavirus financial crisis by conserving cash on its books. It has massively conserved liquidity on the balance sheet in the quarter ended March. As a result, cash and cash equivalents portion increased by 120 per cent to Rs 11,549 crore, compared to Rs 5,239 crore as in December 2019.

In the January-March quarter, when the pandemic started hurting the global markets, Tata Steel, which has a strong presence in India and Europe, started stocking the liquidity to deal with financial emergencies like loan repayments and fixed costs. The economy went to a standstill during the national lockdown and the cash flow of the companies completely crashed to zero. The business revival started with the opening of the economy in June. However, many of the major cities and towns are still in the containment zones and the markets are yet to be opened fully.

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As the cash portion increased on the balance sheet, the net debt of Tata Steel stood flat in the March quarter at Rs 1,04,779 crore, compared to 1,04,628 crore in December 2019. The net debt stood at Rs 94,879 crore in March 2019. Since the company decided to conserve cash rather than making additional payments, the gross debt increased to Rs 1,16,328 crore from Rs 1,09,867 crore in the three-month period. The gross debt was Rs 1,00,816 crore in March 2019.

"It is the right move at this point of time when the banks are reluctant to lend. Earlier, the companies which make additional cash flow go immediately to the bank and reduce the debt. There was enough liquidity options available in the system for them at the time of necessity. At present, the whole liquidity market is in trouble," said a financial analyst.

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Credit flow was a problem even during pre-COVID period. But there were other sources of financing like mutual funds, insurance companies, foreign portfolio investors (FPIs) and non-banking financial companies (NBFCs). Commercial papers were majorly funded by MFs. When credit flow has stopped from other sources, banks are also not lending.

At the end of December 2019, Tata Steel had Rs 14,027 crore liquidity, comprising of cash and cash equivalents of Rs 5,239 crore and undrawn bank lines of Rs 8,788 crore. The liquidity increased primarily because of the rise in cash portion. The liquidity stood at Rs 17,745 crore in March, including Rs 11,549 crore in cash and cash equivalents and Rs 6,196 crore of undrawn credit lines.

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