Tata Steel Q1 loss widens 10 times to Rs 3,183 cr on UK-long product unit divestment

Internal restructuring, competitive pound help improve EBITDA by 21 per cent

Tata Steel’s consolidated net loss widened about 10 times to Rs 3,183 crore in the quarter ended June (Q1), against a Rs 317-crore loss in the corresponding period last year, according to the new accounting standard Ind-AS. The loss was mainly on account of divestment of its long steel products division in the UK.

According to Bloomberg estimates, the country's largest steel producer was expected to garner a profit of Rs 375 crore in the period under review and churn a top line of Rs 28,468 crore in the quarter. The company's revenue stood at Rs 26,406 crore in Q1, down 5.7 per cent from last year, as steel deliveries took a hit in some European markets even as the domestic market remained flat, despite planned shutdown during the quarter.

Though the top line and bottom line were dismal, Tata Steel saw improved earnings before interest, taxes, depreciation and amortisation (Ebitda) or operating profit, both at stand-alone and consolidated levels.

“The group’s performance improved significantly across all geographies, which reflected in the Ebitda. Also, despite muted demand in the domestic market, our India business saw improved underlying Ebitda performance and it is heartening to mention that Kalinganagar start-up is progressing as per plan,” Koushik Chatterjee, group executive director (finance and corporate), told reporters at the earnings conference held here on Monday. The domestic business reported an operating profit of Rs 2,236 crore, up 17 per cent from a year ago, while consolidated operating profit jumped 21 per cent on a year-on-year (y-o-y) basis to Rs 3,270 crore.

“Significantly competitive pound, better product mix and internal restructuring, which helped us in cost saving, led to improved Ebitda especially in Europe,” Chatterjee said.

The company will need to carry out a painful internal restructuring to make operations sustainable in Europe, said the management. Tata Steel's net profit from continuing operations (excluding the long steel unit of UK) stood at Rs 172 crore in Q1  against Rs 22 crore a year ago. Further, the total comprehensive income, which also includes other comprehensive income of Rs 350 crore, narrowed the loss to Rs 2,833 crore in the quarter, but remained 29 per cent higher than a year ago.

Regarding the UK business, Tata Steel said it continues to explore options for a strategic collaboration through a potential joint venture. “We cannot make any definitive disclosures at present, but we are in talks with all stakeholders to find a sustainable solution for UK operations,” said Chatterjee.

Meanwhile, the management also said competitiveness and sustainability of all its facilities in Europe would be of priority while it discusses with industry players. In the domestic market, Kalinganagar has set an export target of 0.5 million tonnes (mt) for the current financial year (FY17) and has plans to make the entire 3 mt capacity operational next year.

“Tata Steel India operations would be 12 mt in FY18,” informed T V Narendran, managing director at Tata Steel India and Southeast Asia operations.

The Kalinganagar plant started commercial operations from June 1. The company said flat deliveries (at Indian operations) in the period under review were because of the planned shutdown of domestic facilities and absence of demand in the infrastructure sector. Automotive sales grew 19 per cent from a year ago, while branded products now account for 34 per cent of total deliveries, said the company.

As on June 30, the company's consolidated net debt stood at Rs 75,259 crore and its liquidity position was Rs 12,746 crore.

Tata Steel expects demand to pick up after the monsoon and festive seasons on the back of an expected increase in disposable income as a result of the Pay Commission’s award, good harvest and easier liquidity. Supply-side pressure from domestic steel companies is likely to cap realisations and keep industry mill utilisation levels under check, the company said.

In Europe, supply pressures from imports are expected to continue, but a weaker pound is expected to improve UK's short-term competitive position in exports. However, this will add to cost pressure because of higher cost of raw materials.