Auditor flags Tata Steel Europe's ability to carry on as going concern

The operational revenue of Tata Sons fell by 62% to Rs 9,460.24 crore in FY21 as against Rs 24,770.46 crore reported in the previous year

The auditor of Tata Sons has drawn the attention of the company’s shareholders regarding material uncertainty related to the going concern status of Tata Steel Europe, a subsidiary of Tata Steel.
 
“We draw your attention to the consolidated financial statements regarding adequacy of the disclosure made concerning Tata Steel Europe’s ability to continue as a going concern. The Covid-19 pandemic will require Tata Steel Europe to access group company support to meet its obligations as they fall due. Tata Steel Europe has received a letter from TS Global Pro­curement Company undertaking to provide working capital and/or other cash support up to a specified amount which exceeds the amount forecast as being required by Tata Steel Europe over the next 12 months,” the report said.
 
Tata Steel Europe reported a loss of £793 million pounds ($1.08 billion) in the last financial year,  mainly due to the fall in demand caused by the pandemic. Though Tata Steel has pled­ged financial support to its Euro­pean operations, its auditor, PWC has warned there can be no certainty that the funds required by TSE will be made available. The rise in steel prices, however, is sho­wing signs that its fortune will revive. “Th­ese conditions, along with other mat­ters, and the existence of material uncertainty may cast significant doubt about Tata Steel Europe’s ability to cont­i­nue as a going concern. The consolida­ted financial statements do not inc­lude adjustments that would result if Tata Steel Europe was unable to continue as a going concern,” auditor, BSR said.
 
The annual report said the operational revenue of Tata Sons fell by 62 per cent to Rs 9,460.24 crore in FY21 as against Rs 24,770.46 crore reported in the previous year.
 
The operational revenue comprises dividend income from subsidiaries and it was far higher in FY20 due to special dividend received from its profit generating subsidiary, TCS. Other income for FY21 was Rs 10,138 crore compared to Rs 125.93 crore in the previous year. This is mainly due to the profit from buyback of shares by TCS, according to the ann­ual report of the company.

However, the annual report did not mention the rem­u­­neration of Chairman N Chandra­sekaran and other directors. The remuneration of executive director Sourabh Agarwal was up by 35 per cent to Rs 21.5 crore, according to the report. An extension of his term will be discussed in the upcoming AGM on September 14.
 
The profit before tax was Rs 7,523.01 crore in FY21, as against Rs 2,679.75 crore in the previous year, an increase of 181 per cent. The company also managed to lower its net debt to Rs 27,615 crore, while its gross borrowing was Rs 30,334.30 crore for FY21 (see chart).
 
Tata Sons said during FY21, it inve­s­ted in its subsidiaries based on their requirements for capital and deleveraging their balance sheets. It also incre­ased stake in its key listed subsidiaries, the report said. It also said that the market value of Tata Sons’ listed investments was Rs 10.29 trillion as on March 31, 2021, a rise of 84 per cent compared to the previous year. This is owing to a booming stock market.
 
Among its subsidiaries, Tata Tele­services continues to be a major cash drainer. Tata Sons said as on March 31, 2020, TTSL and its subsidiary, Tata Teleservices (Maharashtra) (TTML) had provided Rs 10,399.97 crore towards licence and spectrum dues, arising out of a Supreme Court judgment.