Tata Steel Q1 consolidated net profit at Rs 702 crore, down 64% YoY

India operations hit on fall in realisations, weakness in auto sector

Tata Steel on Wednesday reported a lower-than-expected consolidated net profit of Rs 702 crore in the April-June quarter. This was down 64 per cent for the same period last year, even as its India operations took a hit.

The company’s consolidated top line in the period under review stood at Rs 35,382 crore, against Rs 35,106 crore last year — almost flat on a year-on-year (YoY) basis.

According to Bloomberg estimates, Tata Steel’s consolidated bottom line was seen at Rs 1,554 crore in the June quarter, while revenue was expected to be at Rs 37,279 crore.

During the quarter, steel prices across geographies declined with weakening economic activities and uncertainty around the ongoing US-China trade conflict, said Tata Steel in its release. This coincided with a sharp rise in iron ore prices due to supply disruptions and elevated coking coal costs.  As a result, steel spreads dropped by around $80-$100 per tonne in key markets, said the company.

In India, steel prices declined, as subdued economic activity, seasonal slowdown, and liquidity issues weighed on domestic consumption. Higher net imports further exacerbated the demand-supply balance, it said.

In Europe, the steel industry faces significant headwinds in terms of lower economic growth, uncertainty around Brexit, and trade conflict. This, coupled with rising share of imports and elevated raw material prices, has led to a sharp decline in steel spreads.

Tata Steel’s consolidated adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) shrunk 29 per cent in the June quarter, from same period last year, with Ebitda per tonne declining to Rs 8,725, from Rs 10,394.

“Amidst a very challenging global economic environment, including in India, higher input costs and weak demand conditions, Tata Steel reported a consolidated Ebitda margin of 15.4 per cent,” Koushik Chatterjee, executive director and chief financial officer, said in a statement.

Tata Steel India business saw its operating profit drop 37 per cent on a YoY basis to Rs 2,443 crore in the June quarter, as revenue declined marginally and expenses moved up.

“The steel sector is facing significant headwinds, which has affected spreads and the overall profitability. However, our strong business model in India has helped us counter the overall market weakness, including the slowdown in the automotive sector, by growing volumes in multiple customer segments,” said T V Narendran, chief executive officer and managing director, was quoted as saying.

During the quarter, Tata Steel Europe’s liquid steel production was impacted by planned shutdowns and unplanned outages. This, coupled with sluggish demand, adversely impacted delivery volumes, said the company.

“Our consolidated gross debt during the quarter increased primarily due to reclassification of lease obligations, according to IndAS 116 and short-term acquisition financing of Usha Martin’s steel business at Tata Sponge,” said the management in the company release.

“We are also working on capital release from special initiatives on working capital, portfolio consolidation, and recalibration of capital expenditure for the year. Our liquidity is strong at over Rs 12,000 crore,” said Chatterjee.

Alongside, Tata Steel continued its efforts to divest stake in the Southeast Asia business.

The company said on Wednesday the board approved signing a memorandum of understanding with Synergy Metals and Mining Fund to divest 70 per cent of the company’s stake in Tata Steel Thailand in a 70:30 partnership for the Thailand business.

Going ahead, the company remains optimistic. “Increased government spending and efforts to address liquidity crunch should help revive demand and steel prices in India in the second half of the year,” said Narendran.