Tata Steel swings to profit in Q1, but lags estimates

Company posts consolidated net of Rs 921 cr in Q1 FY18 against a loss of Rs 3,183 cr in Q1 FY17

Tata Steel, the country’s largest steel producer, came back to the black by reporting a consolidated net profit of Rs 921 crore in the April-June quarter, as strong performance of domestic operations continued to lead the show followed by improved earnings scenario from European operations. The company had posted a huge loss of Rs 3,183 crore in the corresponding period last year.
 
However, profitability of the company was partly hit by an exceptional loss of Rs 617 crore on account of provision for mining-related litigation.
 
In the period under review, the firm’s top line stood at Rs 30,803 crore, up 19 per cent from same period last year, as deliveries increased with India contributing 47 per cent of the group deliveries. Also, the growth in branded and retail sales in the domestic market by 19 per cent supported the top line. “Increased capacity in India with the ramp up at Kalinganagar along with ongoing restructuring of Europe operations helped Tata Steel witness increased revenues in the June quarter,” Koushik Chatterjee, group executive director (finance and corporate) said at the earnings conference call on Monday. Consolidated earnings before interest, taxes, depreciation and ammortisation (Ebitda) in the period under review stood at Rs 4,939 crore, up 50 per cent from last year, on higher volumes from domestic operations, and improved operating performance in Europe along with favourable conditions in the overseas business, said Chatterjee.
 

Compiled by BS Research Bureau

According to Bloomberg estimates, Tata Steel’s net sales was seen at Rs 28,468 crore, while its net profit was expected to be at Rs 1,142 crore. According to Thomson Reuters, analysts on average had expected a net profit of Rs 1,043 crore. As on June 30, the company’s gross debt sequentially rose Rs 4,798 crore to Rs 87,812 crore due to foreign exchange impact, inventory build up in India as a result of the goods and services tax (GST) implementation and seasonal trends in Europe, the company said in its release. Net debt, however, was at Rs 71,703 crore due to higher cash reserves to fund the payouts as part of the British Pension Scheme settlement.
 
As part of restructuring of operations, Tata Steel said its UK operations completed sale of two pipe mills to Liberty House Group. The steel producer also sold its stake in Tata Motors for a total consideration of Rs 3,778 crore. “With this sale, we have monetised over Rs 14,266 crore of divestments over the last five years,” Chatterjee said.
 
The company has been in a divestment mode for a while now in order to generate more cash to reduce financial strain on its heavy balance sheet.
 
In India, revenues moved up due to higher volumes on a year-on-year basis to Rs 14,286 crore from Rs 10,261 crore in the corresponding period last year. Ebitda generated was impacted by higher input cost, which rose significantly due to volatile coking coal prices, the management said. In terms of its raw material security, Tata Steel’s iron ore requirement is entirely met via captive sources but 70 per cent of its coal requirement continues to remain unsecured.
 
Sequentially, sales volumes declined 14 per cent due to seasonal factors, de-stocking across the channel in the run-up to the GST and planned shutdown, said the company. Going ahead, the company is seeing price recovery on the back of stronger domestic demand and better international prices.
 
“We remain positive on the outlook for India steel markets given the thrust on infrastructure and affordable housing. We also expect rural demand to pick up on account of good monsoons, higher MSP (minimum support price) and loan waivers. However, appreciating rupee remains a cause of concern,” said T V Narendran, managing director of Tata Steel India operations. Meanwhile, the company’s European operations saw improved profitability as Ebitda went to Rs 1,253 crore in the June quarter, up from Rs 890 crore in the same period last year. “Our focus remains on increasing sales of differentiated products in our European sales mix,” said Hans Fischer, managing director and chief executive officer at Tata Steel Europe.