Tata Steel reports Rs 2,127-cr loss in Q3

Loss higher than expected

Tata Steel, the country’s largest steel producer, reported a loss of Rs 2,127 crore in the quarter ended December 2015, against a profit of Rs 157 crore in the corresponding period in the previous year. This was mainly because of lower realisations, write-downs taken and restructuring done at its European operations along with employee separation compensation charges taken for the India business. The Street had anticipated a loss of Rs 1,103 crore as indicated by Bloomberg consensus estimates.

The consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 841 crore was much lower than the consensus estimate of Rs 1,409 crore according to Bloomberg and lower than the Rs 3,090 crore in the year ago quarter. Both net profit and Ebidta were the worst in three quarters.

Cheap imports from China, Russia, Korea and Japan have surged to all-time highs. Imports to India were at 12 million tonnes per annum (MTPA) primarily originating from China, while imports to Europe were at 30 MTPA impacting realisations.

Tata Steel Europe saw Ebitda loss of about Rs 675 crore, worse than expectations of about Rs 365 crore. The company attributed the loss to the sharp deterioration of market spreads in Q3FY16 to Euro 180 per tonne from Euro 207 per tonne in Q2FY16.

“Growing European steel demand continues to be undermined by a flood of imports into the region. Chinese steel shipments into Europe leapt more than 50 per cent last year, while imports from Russia and South Korea jumped 25 per cent and 30 per cent respectively,” Karl-Ulrich Kohler, managing director and chief executive officer at Tata Steel in Europe, was quoted as saying.

Consolidated earnings of the company from its steel business before finance cost, exceptional items and tax itself stood at a loss of Rs 81.23 crore in the period under review as against a profit of Rs 2,453 crore last year.

Net sales of the company stood at Rs 27,818 crore in the period under review, down 16 per cent from same period last year on the back of lower steel prices even as deliveries were slightly better at 6.37 million tonne when compared to 6.29 million tonne last year. The company reported a loss at the operating profit level, which widened further with three-layered exceptional items coming in.

As per Bloomberg estimates, the topline was expected to be at Rs 28,336 crore.

In India, business climate is also muted.

On standalone basis, revenues of the company stood at Rs 8,991 crore in the December quarter, down 8.5 per cent from same period last year. Bottom-line halved to Rs 452.82 crore in the quarter gone by from Rs 880 crore last year. Ebitda per tonne dipped to $97 as against analyst estimate of about $115.

"The current business conditions for the global steel industry are extremely challenging with confluence of elevated imports across regions, currency headwinds and depressed market sentiments affecting Tata Steel Group’s profitability. We are witnessing significant unfairly priced imports into countries like the UK, India and South East Asia which has disrupted the pricing discipline in most markets," Koushik Chatterjee, group executive director (finance and corporate) was quoted as saying.

In the period under review, Tata Steel, under the exceptional item category, took a Rs 72.11 crore one-time non-cash write-down and a hit of Rs 615.39 crore for restructuring done at European operations along with employee separation compensation for India operations at Rs 24.27 crore.

"Steel markets in India have been affected by depressed international steel prices and predatory imports. Tepid demand among steel consuming sectors has further exacerbated the problem," TV Narendran, managing director of Tata Steel India and South East Asia was quoted as saying. “The quarter saw a sharp decline in steel prices which has impacted our margins at India operations,” he added.

At Kalinganagar, Tata Steel expects to commence the commercial production by end of this fiscal year. As at end of Q3’FY16, Rs 23,000 crore was spent on the Kalinganagar project, of which Rs 7,000 crore through project finance debt and balance through internal equity, said the company.

During the quarter, Tata Steel successfully refinanced $1.5 billion of debt which has given further flexibility and extended tenure while reducing costs, said the company.