Tata Steel has reported a lower-than-expected consolidated net profit of Rs 157 crore for the December quarter, a fall of 69 per cent compared to the year-ago period. Net sales took a hit due to weak domestic demand and surge in low-priced steel imports.
Consolidated revenue stood at Rs 33,633 crore, down nine per cent from the corresponding period of 2013, even as deliveries in India and Europe (two key contributors) rose three-four per cent.
“The fall in realisations, coupled with disruptions in our captive mining operations, adversely affected our profitability during the quarter,” a company release quoted Managing Director (India and Southeast Asia) T V Narendran as saying.
Bloomberg had estimated net sales of the company at Rs 34,839 crore, while the net profit was pegged at Rs 162 crore.
During the quarter, regulatory challenges led to disruption in the company’s mining operations, which impacted domestic business, Tata Steel said. Mining in the Joda East, Katamati, Bamebari and Joda West mines were suspended since November 15, 2014, due to a ban imposed by the Odisha government.
These were resumed on December 16, 2014, following an order by the Odisha High Court in this regard, the company said.
In Jharkhand, mining in the Noamundi iron ore mines, suspended since September 4, 2014, was resumed on January 1 this year, following an order by the state government.
In the domestic market, sales to the value-added steel segment — the automotive and special products segment — increased 20 per cent year-on-year, while deliveries to the high-end segment were up 22 per cent. Sales in the branded products, retail and solutions segment increased 12 per cent, while retail sales rose 18 per cent.
The company’s consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) in the December quarter were lower than expected, falling 21 per cent year-on-year to Rs 3,090 crore, owing to pressure in Indian and Southeast Asian operations that resulted from weak demand and higher imports by China.
The year-on-year rise in other income (Rs 119 crore, against Rs 18 crore a year earlier) was largely offset by an increase in finance costs, which rose to Rs 1,167 crore (from Rs 1,108 crore a year earlier).
European operations fared well, in line with the improving trend in the past few quarters. In Europe, the company launched 22 new products in the first nine months of FY15; in that region, it now has 100 new products in its portfolio.
“The European business continued to improve its product mix, with sales of differentiated products now accounting for more than a third of the overall sales. This portfolio enhancement, together with lower input costs, contributed to the improved financial performance last quarter,” Tata Steel said.
In the December quarter, Ebitda for European operations stood at Rs 1,308 crore, compared to Rs 929 crore in the September quarter and Rs 860 crore in the year-ago period. By comparison, Ebitda for Indian operations declined to Rs 1,979 crore from Rs 3,196 crore in the September quarter and Rs 3,131 crore in the year-ago period. As Indian operations account for a larger chunk of profits (its contribution to sales is small), it hit the company’s consolidated profit.
‘Tata Steel’s Southeast Asia operations recorded a significant surge in imports from China. For the quarter, an Ebitda loss of Rs 18 crore was recorded, compared to a profit of Rs 137 crore in the year-ago period.
Rahul Dholam, research analyst – metal & mining, Angel Broking, said, “Domestic numbers were below expectations; Europe outperformed. Realisation per tonne at $ 743 was lower than our estimate of $ 776. Higher than expected employee, freight and other manufacturing costs dragged the Ebitda margin to 20 per cent versus our estimate of 21.5 per cent. Ebitda per tonne came in at $ 150 per tonne as against our estimate of $ 166 per tonne.”
Another analyst with a local brokerage said, “No doubt the standalone (India) performance has been very weak, but Europe has shown an improvement on higher efficiency; so, that was a positive. However, given the demand outlook in the domestic market, the Ebitda per tonne will remain low, as prices are expected to drop.”
“But if India stabilises and Europe, which has been a drag all this while, begins to outperform, that will be something to look for in the coming quarters,” the analyst added.
On the sale of Tata Steel Europe’s long products division, the company said due diligence for a potential sale to the Klesch group was underway.
On the outlook, Karl-Ulrich Köhler, managing director and chief executive of Tata Steel Europe, said, “European steel demand continued to recover in 2014 and should improve modestly this year. But margins remain under pressure, with imports having risen from countries such as China and Russia…We see opportunities to further improve our performance this quarter, and will continue to enhance our portfolio to strengthen our position in Europe.”
In India, the company said it was moving towards commissioning the Kalinganagar project in mid-2015, as it was facing challenges in securing the necessary linkages.
During the December quarter, the company sold its five per cent stake in the Carborough Downs joint venture in Australia for A$ 6.9 million (about Rs 34 crore) to Vale, as part of the Tata group’s financial initiatives to strengthen its balance sheet.
Koushik Chatterjee, group executive director (finance and corporate), Tata Steel, said, “The company’s liquidity remains strong at Rs 21,700 crore, along with undrawn lines. In addition, the company has committed project finance facilities for its Odisha project.”
The company also continues to closely monitor its investment portfolio, in line with its strategy of monetising non-core assets. Recently, Tata Steel’s credit rating was upgraded by Moody’s to ‘Ba1’, with a stable outlook, Chatterjee said.