Tata Steel Q1 net rises on higher India volumes, improved European business

Image: Darren Staples / Reuters

Tata Steel, the steelmaking arm of the salt-to-software Tata Group, reported a robust rise in consolidated net profit for the quarter ended June 30, which stood at Rs921 crore, versus a loss of Rs3,183 crore a year ago; and a loss of Rs1,168 crore in the sequentially preceding quarter. The rise in profitability was largely the function of a ramp-up in volumes from Tata Steel’s newly commissioned Kalinganagar plant, a gradual turnaround in the European operations, and higher sales of branded and specialty steel products in India and Europe.
 
For the three months ended June 30, the company’s consolidated turnover came in at Rs30,973 crore, up 19 percent year-on-year. Earnings before interest, tax, depreciation and amortization (Ebitda) in the same period rose 49.5 percent to Rs4,939 crore. Sequentially, however, revenues and Ebitda fell sharply, which the company’s management attributed to channel destocking in India due to the introduction of GST (Goods and Services Tax) and a higher base effect, due to the preceding fourth quarter of fiscal 2017 being a seasonally strong one.

Tata Steel’s profit after tax would have been higher, but for an exceptional charge of Rs617 crore, which was provided in the books of the company on account of statutory demands and claims arising pursuant to a Supreme Court order related to Tata Steel India’s mining operations. 

During the first quarter of fiscal 2018, Tata Steel India’s steel deliveries stood at 2.75 million tonnes, up 28 percent year-on-year, but a 14 percent decline over the January-March quarter. This, the company said, was due to “seasonal factors, GST and planned shutdowns.”

In Europe, liquid steel production stood at 2.79 million tonnes during the quarter, up 7 percent year-on-year and quarter-on-quarter, reflecting improved market conditions in Europe.

“We remain positive on the outlook for Indian steel markets given the thrust on infrastructure and affordable housing along with increased emphasis on buying domestic manufactured steel for government projects under the new steel policy,” said TV Narendran, MD of Tata Steel India and South Asia in a statement issued by the company on Monday. “We expect the drop in interest rates and inflation to trigger a consumption cycle which will help our retail business and overall steel demand.”

A Motilal Oswal research report dated July 19 expected Tata Steel to continue doing well from an operating performance standpoint due to demand revival in the global steel market and protectionist measures against dumping of low-cost steel produced in China in the company’s key markets of India and Europe. “More protection is expected in Europe by October. This may drive upgrades for Tata Steel Europe,” the Motilal Oswal report says.

As production ramps up at Kalinganagar in Odisha, it is also expect to add more meaningfully to the company’s Ebitda going forward, says a research report ICICI Securities dated July 17. “The conversion costs of Kalinganagar are much better compared to Jamshedpur and should add to EBITDA tailwind as start-up costs decline while production stabilizes,” the ICICI Securities report says. 

As on June 30, Tata Steel’s net debt stood at Rs71,703 crore, with cash and cash equivalents amounting to Rs16,109 crore. Tata Steel’s statement said that the company’s gross debt went up by Rs4,798 crore during the quarter due to adverse foreign exchange movement and inventory buildup due to the impact of GST in India and seasonal weakness in Europe.

Tata Steel has been looking to monetize assets to pare its debt burden and, during the April-June period, it sold its stake in Tata Motors for a total consideration of Rs3,778 crore. Also in this period, Tata Steel completed the sale of two steel pipe mills in UK to Liberty House Group. 

The company, which is a part of the $103 billion-Tata Group, said that its net debt was significantly lower than it gross debt of Rs87,812 crore due to “build up in cash reserves to fund the 550 million pounds payout as part of the BSPS (British Steel Pension Scheme) settlement.” 

In its earning statement issued on Monday, Tata Steel said that it would shortly finalise a regulated apportion agreement for the BSPS. This restructuring of the pension scheme that covers Tata Steel Europe’s workers would entail paying a settlement amount of 550 million pounds to the BSPS and the provision of a 33 percent equity stake in Tata Steel UK. In exchange, Tata Steel would be able to close the defined benefit pension scheme, which exists currently, to future accruals and would lead to substantial financial benefit for the company’s beleaguered European operations.

Tata Steel’s share price rose 4.26 percent on the BSE on Monday to close at Rs600 per share. The bourse’s benchmark S&P BSE Sensex lost 0.16 percent to end at 32,273.67 points.