Tata Steel profit up 22%

CORPORATE SCORECARD

Tata Steel, the country's largest producer, reported a 22 per cent gain in first-quarter profit, beating analyst estimates, after raising prices and output of higher grade products used by car-makers.

Net income, excluding contributions from unit Corus Group, rose to Rs 1,488 crore ($350 million) in the quarter ended June from Rs 1220 crore a year ago. Sales climbed 47 per cent. Managing Director B Muthuraman in April raised prices for customers with annual contracts. The steel-maker, facing record raw-material costs, may lift rates after the government-imposed freeze on domestic prices ends next month, analysts said.

"They needs to raise prices by at least Rs 2,500 a tonne to maintain margins," said Bharath S, an analyst at Sundaram BNP Paribas Mutual Fund in Chennai. The fund held 664,340 Tata Steel shares on June 30, after selling about half-a-million last month, according to data on the Bloomberg.

Global steel-makers including ArcelorMittal and Posco have raised prices this year to pass on a three-fold surge in coking coal prices and a near doubling in iron-ore costs. ArcelorMittal yesterday said profit more than doubled in the June quarter and Posco posted a 34 per cent jump to a record in the period.

In comparison, Tata and other Indian steel-makers have been forced to hold prices since May to aid the government's efforts to cool inflation that's at a 13-year high. The ban ends on August 8. Domestic prices are Rs 10,000-15,000 a tonne below global levels, S K Roongta, chairman of Steel Authority of India, the second-biggest producer, said this month. There's "every justification" in raising prices, Tata's Muthuraman said July 16.

"It's a double whammy for Indian companies,'' said Jayesh Shroff, who helps manage $6 billion at SBI Asset Management Co., including Tata Steel shares. "While companies pay global prices for raw materials, they are not allowed to raise prices." While Tata imports a third of the coal needed for its mills in India and mines its own ore, Corus buys both the ingredients. Steel Authority imports 13 million tonnes of coal, or two-thirds of its annual requirements. Tata Steel shares rose 4 per cent to Rs 655.1 in Mumbai today. The stock has fallen 30 per cent since January. Posco has dropped 6 per cent in the period, Nippon Steel Corporation 10.4 per cent, and JFE Holdings 6.5 per cent.

Earnings were announced after markets closed. The company boosted sales 11.5 per cent to 1.16 million tonnes to counter the price cap and raised the proportion of the more-expensive grades.

used in cars and appliances, Koushik Chatterjee, chief financial officer, said today in Mumbai. "With better efficiency and product-mix, we will be able to maintain strong earnings and margins," he said. The price limit only affects a fifth of Tata's 7-million tonne output, he said. The remainder is sold through annual and quarterly contracts, prices for which were set in April. Earnings included a foreign-exchange loss of Rs 303 crore after the 7 per cent slide in the Indian currency against the US dollar in the quarter forced the steel-maker to revalue its overseas debt. Interest costs surged more than five-fold to Rs 242 crore, the company said.

Revenue from mineral and ferro-chrome business more than doubled to Rs 840 crore.