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Tata Steel's consolidated net profit for April-June was expected to decline from the same period last year, due to weak realisation from both the domestic and international businesses and also due to increase in foreign exchange losses, brokerages said.
A depreciating rupee against the dollar was likely to push up the company's foreign exchange losses, they said. The company will detail its consolidated June quarter earnings on Tuesday.
On domestic operations, realisation was seen as down by 18 per cent, year-on-year, while its international business realisation might fall seven per cent, said Edelweiss Securities in a report.
April-June saw weak demand, with Indian steel consumption estimated to have risen only two per cent over a year, as against the long-term average of eight per cent, said Anand Rathi Research.
Apart from dull steel demand, a weak product mix was also expected to contribute to lower realisation in the period under review, said brokerages.
In Europe, reduced prices of coking coal and iron ore were expected to be offset by lower steel prices, they said. A worsening macroeconomic environment in Europe and shrinking demand for steel in the continent has been hurting Tata Steel Europe's operations. Earlier Corus Group Plc, it is Europe's second-largest producer and has witnessed falling demand in the region since the global financial crisis of 2008. Tata Steel had acquired Corus for $13 billion in 2007.
The company's earnings before interest, taxes, depreciation and amortisation margin is also seen dropping 32 per cent over a year, due to lower savings in costs, said Edelweiss. Nirmal Bang Institutional Equities sees the company's Ebitda (earnings before interest, taxes, depreciation and amortisation) falling 15.6 per cent from that a year ago to Rs 2,871 crore in April-June.
Steel producers had not been able to pass on the entire rise in product prices due to the rupee's weaknees against the dollar, mainly because of sluggish demand, said analysts. This is expected to hit Ebitda during the quarter.
Volumes in India operations will be the key monitorable to look for in the earnings, said brokerages.
Sequentially, too, the company's consolidated bottom line is likely to fall, on the back of a decline in India operations' sales in terms of volume. "We forecast (India operations) volume to decline 12 per cent quarter-on-quarter," said Bank of America Merrill Lynch in its report.
