Corus to weigh Tata down

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Mumbai: The Tata Group, which posted revenues of Rs 2,51,543 crore in financial year 2007-08, of which over 60% accrued from its international operations, is likely to take a hit of more than 20% on its net profit in 2008-09. This, despite the relatively good performance of Tata Steel, whose year-on-year net profit grew by 121% for the first half of the fiscal.

Tata Steel along with UK arm Corus Plc accounts for as much as 68% of the Tata group’s global revenues. But the weak link in the story is ironically expected to be Corus. Unlike Tata Steel, which has been relatively insulated from the slump in steel demand in the second half of the year as it is an integrated plant that sources most of its raw material from its own mines, Corus is not.

The Tata group derived 57% of its global revenues from Europe alone last fiscal. Its global revenues jumped 254% to Rs 1,89,662 crore from just Rs 53,481 crore after Tata Steel acquired Corus. But with Corus announcing a 20% cut in production—which it rapidly changed to 30% as demand slumped especially in China and from automobile and construction sectors—that picture has changed dramatically.

Another group company, Tata Motors, has also shown losses from its Jaguar and Land Rover acquisitions, and so international revenues will see a huge dip. According to Angel Broking, for the third quarter, Tata Motors is expected to report a net profit of only Rs 41 crore, a 91% dip year-on-year on a sales volume of Rs 5,070 crore in the domestic market.

Tata Motors contributed 3% to overall revenues of the group last year. TCS, another group firm, which has 13% share in global revenues, is also likely to see lower volumes in the coming quarters owing to the downturn in US and Europe.

“The slowdown in Corus will surely be a drag on the Tata Group’s global revenues,” confirmed an analyst with a Mumbai-based brokerage. “Tata seems to have a penchant for European acquisitions, which is now having a negative impact on the group,” he added.

A Tata group spokesperson did not respond to queries about the group’s global revenues until going to press, but analysts said investors have been sceptical of Tata’s international strategy at this juncture and, as a result, had been punishing most of the group companies’ stocks.