Tata Steel on Tuesday beat estimates on almost all fronts, posting a consolidated net profit of Rs 735 crore in the April-June quarter, more than double of what it posted in the same period last year, on the back of lower tax expenses and finance costs and higher other income.
Consolidated sales in the period declined 17% y-o-y to Rs 30,300 crore due to weak demand environment and surging imports from China impacting business environment. Other income of Rs 762 crore at the consolidated level, including gain of Rs 697 crore on sale of investments, supported the net earnings, while the company also reported exceptional gain of Rs 105 crore at the standalone level from sale of the company’s stake in Tat Projects. Quarterly finance cost and tax expenses declined 12% and 52% respectively on y-o-y basis.
Bloomberg consensus estimate pegged Tata Steel to report sales of Rs 29,584 crore, ebitda of Rs 2,164 crore and a net loss of Rs 556 crore for Q1FY16 on the consolidated level.
Tata Steel said the gains made by higher sales volume for its India operations — deliveries in Q1FY16 jumped to 2.14 million tonne from 2.10 million tonne in the corresponding quarter — were offset by lower realisations. UK operations were similarly impacted by a sharp appreciation in the value of the sterling (pound sterling) against the euro and rising imports from China and Europe. During the quarter, the average value of sterling depreciated by 11% y-o-y, shows Bloomberg data.
With the topline under pressure, Tata Steel reported a more than 35% jump on y-o-y basis in consolidated Ebitda to Rs 2,799 crore. Quarterly Ebitda per tonne for India and UK operations fell to Rs 7,995 and Rs 1,671 crore, depicting a more than 46% drop compared to the same quarter last year.
The Tata Steel management continued to sound cautious on the margin pressure going ahead as they expect domestic prices in Q2FY16 to witness a plunge similar to the sequential fall they observed in Q1FY16. The steelmaker said that given the increasing sales of commercial vehicles and new model launches, it expects recovery in demand in the automotive segment where it enjoys a market share of 44% to support its performance in the coming quarters.
It highlighted that in the wake of a strong jump in China’s exports that rose by 53% in FY15, would continue to impact its domestic as well as Indian businesses. “With the Chinese devaluation that has happened, import pressures could worsen,” Koushik Chatterjee, group executive director and chief financial officer, Tata Steel, said in a call with analysts.