Tata Steel beats analyst estimates on net profit

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Updated: April 26, 2019 5:21:50 AM

It reported a consolidated net profit of Rs 2,295 crore for January-March 2019 on the back of higher volumes.

Tata Steel, Tata Steel net profit, UK pension scheme, Bhushan Steel, Ebitda, Edelweiss SecuritiesTata Steel executive director and CFO Koushik Chatterjee said FY19 has been a strategically important year for the company with multiple challenges and opportunities including opportunities for implementing its long-term growth challenges.

Tata Steel on Thursday reported a mixed bag of numbers as the company beat analyst estimates on net profit and operating income, but missed the revenue expectations. It reported a consolidated net profit of Rs 2,295 crore for January-March 2019 on the back of higher volumes.

According to Bloomberg consensus estimates, Tata Steel’s net profit was expected at Rs 2,195 crore. The net profit is not comparable as in the quarter ended March 2018, the firm had reported a much higher net of Rs 14,688 crore due to a non-cash gain on account of restructuring of UK pension scheme. Total revenue from operations in Q4FY19 grew nearly 26% year-on-year to Rs 42,424 crore, though missing the Bloomberg consensus estimates of nearly Rs 43,726 crore.

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Q4FY19’s consolidated steel production and deliveries grew 27% y-o-y and 29% y-o-y, respectively; India production and deliveries increased by 46% y-o-y and 55% y-o-y in Q4FY19, respectively. Meanwhile, the company management said the board of directors of Tata Steel and Tata Steel BSL (Bhushan Steel) have proposed a merger of both the companies in the interest of maximising value to all stakeholders. “The merger will drive operational synergies and efficiencies, reduce the regulatory burden and simplify the group structure. Both boards have relied on valuation reports and fairness opinions provided by independent experts and recommend a merger ratio of 15 shares of Tata Steel BSL for every 1 share of Tata Steel. The merger is subject to shareholders and other regulatory approvals,” a statement from Tata Steel said.

Speaking to newspersons at an earnings conference, CEO & MD TV Narendran said while the volumes were up during the quarter, the realisations on a y-o-y basis remained flat. Sequentially, the realisations witnessed a decline of about Rs 4,000. Going ahead, Tata Steel sees pressure on raw material prices to remain, which will push up steel product prices by an average Rs 1,000-1,500 in the three months of April-June 2019 versus the quarter ended March 2019.

The consolidated adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) increased by 33% y-o-y to Rs 7,814 crore, driving up the Ebitda margin by 221 basis points to 18.42%. Analysts expected the company to report an Ebitda of about Rs 6,740 crore. The standalone Ebitda/tonne stood at Rs 14,687 during the quarter, much above analyst expectations.

According to analysts, the ferrous sector’s impressive y-o-y price growth for 11 successive quarters has come to a halt with benchmark domestic hot rolled coil/rebar prices falling 4%/5% y-o-y. “Expect Tata Steel standalone Ebitda/tonne to decline 19% y-o-y to Rs 12,866 owing to lower steel prices,” Edelweiss Securities said in a recent report.

For the full year ended March 31, 2019, the company reported a consolidated net profit of Rs 9,098 crore. The net sales for the year increased by 27% to over REs 1.57 lakh crore. Tata Steel reported one of the highest ever consolidated adjusted Ebitda with a record growth of 55% y-o-y to Rs 30,734 crore for the full year ended March 2019.

Tata Steel executive director and CFO Koushik Chatterjee said FY19 has been a strategically important year for the company with multiple challenges and opportunities including opportunities for implementing its long-term growth challenges. “The company progressed significantly on its goals in FY19 with strong operating performance, realignment of the portfolio towards India and achieving a significant deleveraging of its balance sheet. We will continue to target a further reduction in the gross debt by another one billion dollars by the end of financial year 2020,” he said.

In the fourth quarter, Tata Steel reduced consolidated gross debt further by Rs 8,781 crore. “Despite the liquidity issues in the domestic markets, we were able to extend our debt maturity profile by successfully raising Rs 4,315 crore through 15 years non-convertible debentures and completing the long-term financing for Tata Steel BSL,” Chatterjee said. At the end of March 2019, the company’s gross debt stood at about Rs 1 lakh crore, having reduced it by Rs 18,000 crore in the last six months, he said.

Chatterjee said the liquidity position of the group remains robust at Rs 15,284 crore comprising Rs 5,937 crore in cash and cash equivalents and Rs 9,347 crore in undrawn bank lines.

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