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Mumbai: Tata Steel Ltd on Tuesday said its board had approved a Rs23,500-crore capital expenditure plan to expand the capacity of its Kalinganagar facility by 5 million tonnes per annum (MTPA) to 8 MTPA. The board also approved a rights issue of Rs12,800 crore, parts of which would fund this expansion.

The company said that the Kalinganagar plant’s expansion will be completed in four years and is expected to meet demand in automotive, general engineering and other valued-added segments. It said that the project will be funded through a mix of both debt and equity.

Tata Steel had a debt of Rs90,259 crore at the end of September. Its debt-to-equity ratio stood at 2.8.

The company’s focus has turned to the Indian market as steel demand improves and the government embarks on an ambitious infrastructure building programme, including spending 7 trillion on roads.

India’s steel consumption is forecast to almost triple to 240 million tonnes by 2030, with the bulk of it being used in construction, according to the Indian Steel Association.

Over the past year, Tata Steel has sold assets in the UK and agreed to spin off and merge its European operations with Thyssenkrup AG.

The Kalinganagar expansion ends months of speculation that the company is looking at acquisitions to meet its target of doubling total capacity in India in the next five years.

Tata Steel’s current capacity in India is 13 MTPA and it currently operates at 98% capacity utilisation.

Mint had reported on 29 October that Tata Steel had submitted a non-binding bid for Essar Steel Ltd, which has a capacity of 10 MTPA, and is undergoing insolvency proceedings.

The Press Trust of India had reported that the company was also interested in acquiring the 5.5-MTPA capacity of Bhushan Steel Ltd, another company that has been taken to bankruptcy court by its creditors.

“The project configuration and cost includes investments in raw material capacity expansion, upstream and midstream facilities, infrastructure and downstream facilities, including a cold rolling mill complex," the company said in a statement. 

Tata Steel’s domestic sales growth, in recent quarters, has indeed been driven by the automotive segment.

In the quarter ended September, for instance, automotive sales jumped 25% sequentially and 34% from the year-ago period, to 0.47 MT, while none of the other segments could even cross the teens. Automotive, however, remains the smallest of the three segments the company caters to in India, the other two being branded products, retail and solutions (BPRS); and industrial products and projects.

In the quarter ended September, Tata Steel had reported a consolidated net profit of Rs1,017.8 crore compared to a loss of Rs49.4 crore in the year-ago period owing to a 19.7% jump in revenue to Rs32,464.1 crore.

Bloomberg contributed to this story.

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