Impairment charge on assets pulls Tata Steel Q1 net down by 70%

Aug 14 2014, 01:20 IST
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SummaryTata Steel posted an unexpected 70% year-on-year decline in consolidated net profit for the June quarter at R337 crore.

Tata Steel posted an unexpected 70% year-on-year decline in consolidated net profit for the June quarter at R337 crore. The hit came from an exceptional charge of R1,577 crore on account of impairment of assets and goodwill at its Benga coal project in Mozambique, a joint venture with Rio Tinto.

Tata Steel has a 35% stake in the Benga project and Rio Tinto has decided to sell its coal business in Mozambique to Indian state-owned coal mining consortium International Coal Ventures. The charge on account of impairment of assets was mitigated to some extent by a profit of R1,314 crore from the sale of “non-current investments”. The net exceptional charge on consolidated income statement stood at R262.5 crore.

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The year-on-year decline in Tata Steel’s consolidated net profit also looks severe since the company benefited from a one-off tax write-back of R415 crore in the June 2013 quarter.

A Bloomberg poll of Tata Steel’s earnings estimates for the first quarter pegged net profit at R1,048 crore and turnover at R35,643 crore.

Tata Steel’s turnover for the April-June period came in at R36,427 crore, up 11% over the year earlier.

Barring the exceptional impairment charge, Tata Steel did well during the June quarter with its consolidated operating profit rising 15% year-on-year to R4,325 crore.

The company also managed to sell more steel during the period with deliveries of 6.46 million tonnes, versus 6.08 million tonnes during the June 2013 quarter. Tata Steel’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) per tonne of steel sold came in at R669.50 for the June quarter, up 8% over a year earlier.

“Tata Steel’s numbers were broadly in line with what was expected, though the performance of the European business came as a positive surprise,” said Giriraj Daga, senior research analyst at Nirmal Bang Equities. “The one-off impairment charge that has affected net profit is not much of a concern since the operating profit has shown healthy growth.”

On a sequential basis, however, Tata Steel’s operational performance remained depressed. Steel deliveries fell from the 7.62 million tonnes recorded in the January-March quarter. Consolidated turnover fell 14% quarter-on-quarter, and net profit declined sharply from the R1,036 crore achieved in the preceding three months.

Daga said the last quarter of any fiscal is typically the best quarter for steel companies since they actively push sales to clear inventories during the January-March period, which explains the sequential decline in

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