1. Tata Steel net beats Street, surges 37% on one-off gain

Tata Steel net beats Street, surges 37% on one-off gain

Attributes muted growth to seasonality, low-cost Chinese imports

By: | Mumbai | Published: November 13, 2014 12:56 AM

Tata Steel, the steelmaking arm of the salt-to-software Tata Group, posted a 37% year-on-year increase in consolidated net profit to Rs 1,254 crore for the quarter ended September 30, primarily on the back of a one-off exceptional gain from sale of land.

The company saw its consolidated turnover during the quarter decline 2.3% to Rs 35,777 crore. This was despite the volume of steel sold remaining the same at around 6.5 million tonnes (mt).

Tata Steel earned Rs 1,147 crore during the July-September quarter on completion of the divestment of a land parcel it owned in Borivali, Mumbai, a deal that it had announced in the preceding April-June period. The company’s profit, before this exceptional item and tax expenses, stood at Rs 1,203 crore, down 7% from the year earlier.

Tata-Steel

The earnings beat Street estimates on reported net profit due to the one-off exceptional income, but fell below them on turnover. A Bloomberg consensus of Tata Steel’s earnings estimates had pegged net profit at Rs 803 crore and net sales at

Rs 36,418 crore.

The management attributed the muted earnings growth to factors such as the September quarter being seasonally weak in India and Europe (the two main regions where it operates), lower realisations due to pressure on prices from low-cost Chinese imports and macroeconomic headwinds impacting steel demand in India and Europe. In addition, production at Tata Steel’s long products vertical was impacted by a shutdown during the quarter.

These factors led to a significant reduction in Tata Steel’s ebitda (earnings before interest, tax, depreciation and amortisation) per tonne of steel.
According to the company’s presentation, the operating profit reported by Tata Steel Europe improved considerably by 67% to £92 million. Though the selling price of steel was lower in Europe, an “improved product mix and lower raw material prices… improved Tata Steel Europe’s spreads,” the company said.

Tata Steel’s net debt stood at Rs 67,412 crore as on September 30, lower by around Rs 1,600 crore quarter-on-quarter. The company recently concluded a $7-billion debt refinancing programme to replace high-cost debt (associated mostly with Tata Steel’s acquisition of Anglo-Dutch steelmaker Corus) with cheaper borrowings. Koushik Chatterjee, group executive director (finance and corporate), Tata Steel, said the company would save 20-40 basis points in interest cost on the portion of debt that was refinanced, and the debt maturity profile for Tata Steel Europe stood extended by five years.

“We have a clear five years to ramp up the European business before debt repayment starts,” Chatterjee said. Tata Steel Europe has been facing severe operational challenges, rooted in slacking steel demand in the region due to an economic slowdown.

The management indicated that it expects demand to pick up in India in the second half of the current fiscal due to the expected revival in economic growth. Growth in steel demand in Europe (where economic growth has faltered of late) is expected to remain at the same level in 2015.

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