Tata Steel on Thursday posted 63.6 per cent decline in consolidated net profit at Rs 701.97 crore for the quarter ended June 30 on account of weak demand and higher input costs.
The company had posted a consolidated net profit of Rs 1,933.80 crore in the year-ago period, Tata Steel said in a filing to the BSE.
However, Tata Steel's consolidated total income during April-June quarter increased to Rs 36,198.21 crore as against Rs 35,846.92 crore in the year-ago period.
"The steel sector is facing significant headwinds which has affected spreads and overall profitability," Tata Steel CEO and Managing Director T V Narendran said.
"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. Our focus on operational excellence has also helped in containing the impact on margins," he said.
Increased government spending and efforts to address the liquidity crunch, he said, should help revive demand and steel prices in India in the second half of the year.
"While TSE (Tata Steel Europe) performance has been affected by market and operational issues, we are implementing a transformation plan which aims to reduce operating costs, rationalise capex and working capital and improve overall cash flows," he added.
"We are consolidating our presence in India through the proposed merger of Tata Steel BSL with Tata Steel and our ongoing 5 MTPA Kalinganagar phase II expansion, which will improve our product mix and further rationalize costs. Tata Sponge is focused on the integration and ramp-up of the recently acquired 1 MTPA steel business," Narendran said.
The company said steel prices declined in India as subdued economic activity, seasonal slowdown and liquidity issues weighed on domestic consumption.
Higher net imports further exacerbated the demand supply balance, Tata Steel said.
"Amidst very challenging global economic environment including in India, higher input costs and weak demand conditions, Tata Steel reported a consolidated EBIDTA margin of 15.4 per cent on the back of a robust India performance of EBIDTA margin of 24.2 per cent," Executive Director and CFO Koushik Chatterjee said.
Tata Steel's consolidated gross debt during the quarter increased primarily due to reclassification of lease obligations as per Ind AS 116 and short-term acquisition financing of Usha Martin's steel business at Tata Sponge.
Tata Sponge rights issue closed successfully and Tata Steel's holding has increased to 75.9 per cent post the issue, he said.
The integration of acquisition has commenced and synergies are being explored, he said.
"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," he said.
"Today the board has approved the signing of a Memorandum of Understanding with Synergy Metals and Mining fund to divest 70 per cent of our stake in Tata Steel Thailand in a 70:30 partnership for the Thailand business," he added.
Commenting on India operations, Tata Steel said, "India steel production grew by 23 per cent Y-o-Y to 4.50 million tonnes in the first quarter of 2019-20 with consolidation of Tata Steel BSL for the full quarter and higher capacity utilisation at both Tata Steel standalone and Tata Steel BSL."
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," the company added.
Tata Sponge Iron Limited, a subsidiary of Tata Steel, completed the acquisition of steel business of Usha Martin Ltd on April 9.
Subsequently, the company obtained the required statutory approvals to operate its captive iron mines.
The supply of iron ore from the captive mines has commenced from July and is expected to ramp up in the next couple of months, it said.
The company is currently focusing on integration and stabilisation of various operating units and in realising identified synergies in various areas of operations, procurement and supply chain.
The company is also working to bring the newly acquired business in line with Tata Steel's benchmark performances in the areas of environment, safety and operations, it added.
Tata Steel BSL, a subsidiary of Tata Steel, acquired 99.99 per cent holding in Bhushan Energy Ltd in accordance with the approved resolution plan under the corporate insolvency resolution process of Insolvency and Bankruptcy Code, 2016.
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