A strong performance from the Indian operations helped Tata Steel beat consensus analyst estimate during the December quarter with a R232-crore consolidated net profit compared with a loss of R2,747 crore a year ago.
Tata Steel overcame strong demand related issues in its European business and skirted the effect of demonetisation of high-end currencies in November in India by rationalising its operating cost and focusing on value added products in the UK, the company said.
Total consolidated turnover for the quarter rose 14% on year to 29,392 crore, while operating income grew more than four times to 3,550 crore over the same quarter last year.
Total deliveries during the quarter were higher by 5.2% on year at 6.11 m tonnes. Indian deliveries grew 27% on year and 14% sequentially far outperforming the domestic markets which grew by 2% on year and 3% sequentially, the company said.
TV Narendran, managing director of Tata Steel India and South East Asia, said, the company recorded strong sales during the December quarter and countered the head-winds of demonetisation with increased focus on cost improvements.
“While the broader market was affected by lower rural sales and adverse consumer sentiments, we were able to increase overall volumes by 14% sequentially and register strong growth across all our target customer segments,” Narendran said.
“Further, our focus on cost improvement initiatives and our integrated operations helped us to contain the impact of rising raw material prices,” Narendran added.
Revenues from the Indian operations rose around 39% on year to 14,106 crore during the quarter, while the South East Asian business contributed R2,349 crore, up 14% on year. “Our South East Asian operations delivered stronger operating performance this quarter due to a combination of better market conditions, cost rationalisation and higher exports,” Narendran said.
However, higher raw material and power purchase costs led to drop in revenue from the company’s European business that includes the UK operations, where the company was planning to shut some of its loss making steel mills. Tata Steel Europe’s revenues fell to R12,537 crore compared with R13,373 crore a year ago. A better market condition and a more “competitive Pound sterling” though helped the operating income improve to R610 crore compared with a loss of R757 crore a year earlier.
“Differentiated product sales continued to gather pace, with the proportion of total sales rising to over 35% and their value rising by almost 30% YoY,” the company said.
Koushik Chatterjee, group executive director (Corporate and Finance) at Tata Steel said, the financial performance reflects strong underlying operating performance across the group inspite of a seasonally slow quarter in Europe.
“While there were challenges on the working capital levels due to increased prices of both raw materials and finished goods especially in Europe, the company has been able to maintain its overall debt level at the end of the quarter,” Chatterjee said.
The company is confident of resolving the pension issue with the UK union which has recommended its members to support the ballot process that is currently on to close the BSPS to future accruals.
“This is part of the several steps being undertaken to make the UK business more sustainable in the future. We continue to be deeply engaged with the British Steel Pension Trustees and the Regulator towards developing a structural solution for the UK pensions in the coming months,” Chatterjee said.