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Business News/ Companies / Company-results/  Tata Steel posts surprise loss of `364 cr
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Tata Steel posts surprise loss of `364 cr

Earning take a hit from slowdown in Europe, lower steel prices in India, deferred tax liability

Tata Steel’s Indian business witnessed a weak second quarter this fiscal due to a fall in steel prices. Its stand-alone net profit dipped 10% to `1,351 crore from a year ago. (Tata Steel’s Indian business witnessed a weak second quarter this fiscal due to a fall in steel prices. Its stand-alone net profit dipped 10% to `1,351 crore from a year ago.)Premium
Tata Steel’s Indian business witnessed a weak second quarter this fiscal due to a fall in steel prices. Its stand-alone net profit dipped 10% to `1,351 crore from a year ago.
(Tata Steel’s Indian business witnessed a weak second quarter this fiscal due to a fall in steel prices. Its stand-alone net profit dipped 10% to `1,351 crore from a year ago.)

Mumbai: Tata Steel Ltd, India’s largest private sector steel maker, posted a consolidated loss of 364 crore in the September quarter on the back of a slowdown in Europe, lower steel prices in India, and a deferred tax liability. It had posted a net profit of 212.4 crore in the comparable quarter a year ago.

The losses came as a surprise. A consensus of earnings estimates, compiled by Bloomberg, had pegged Tata Steel’s September quarter net profit at 298 crore.

The company’s Indian business witnessed a weak second quarter this fiscal due to a fall in steel prices. Its stand-alone net profit dipped 10% to 1,351 crore from a year ago.

“Indian business has been affected due to dip in steel prices and not volume. India still continues to import steel and demand is robust," Koushik Chatterjee, chief financial officer of Tata Steel, said. Chatterjee was appointed a whole-time director of the company on Friday.

The company also appointed Cyrus Mistry as deputy chairman and chairman designate. Mistry is slated to take over from current chairman Ratan Tata after the latter’s retirement in December. Mistry has also been appointed chairman of Tata Chemicals Ltd.

The steel maker’s profits were also impacted by a deferred tax liability of 339 crore that, according to analysts, Tata Steel had to pay for repaying a foreign currency loan.

Tata Steel’s shares lost 3.25% on BSE on Friday to close at 390.55 each. The bourse’s benchmark index, the Sensex, lost 0.86% to end at 18,683.68 points. In the past year, the shares have lost 12.98%, while the Sensex has gained 7.61%.

The company’s consolidated net sales rose 4.2% to 33,867 crore from a year ago. On a stand-alone basis, its net revenue grew 11% to 9,034 crore. Tata Steel has been trying to cut costs and losses in Europe, but the business is unlikely to see an improvement in the coming quarters.

“We do not expect the situation to improve any time soon. The steel demand (in Europe), according to the World Steel Association, has fallen by 25%," said Karl-Ulrich Kohler, chief executive of Tata Steel Europe.

He added that the company is working on improving its market positioning and plans “to launch 20 new products that will differentiate us from others".

In an interview to Mint in October, Chatterjee had said that Tata Steel will be investing £400 million (around 3,480 crore today) in Tata Steel Europe, out of which £300 million will be used to rein in costs.

Analysts say the situation can worsen in the coming months as the sectoral outlook globally is likely to dip.

“Gross domestic product of France is expected to shrink, China is seeing a slowdown, and the US market is not upbeat. What can be worse for a high capex sector like steel?" said Jagannadham Thunuguntla of SMC Capitals Ltd.

If things are going to get worse globally, it will have a cascading effect on the steel companies in India.

Goutam Chakraborty of Emkay Global Financial Services Ltd agreed the situation in Europe may not improve for up to a year, causing an inventory pile-up.

“However, the company’s India performance has been disappointing and inventory is piling up domestically as well." Chakraborty said, adding that if inventories increase and demand remains unchanged, steel prices will go down further and affect profits.

The steel maker, meanwhile, is planning to exit its non-core businesses. The company sold its stake in a scrap business joint venture in the Netherlands along with some other small businesses for 42.7 crore during the September quarter. “This is an ongoing process and we strive to avoid complexities in business," Kohler said.

The company also confirmed it will sharpen its focus on the India business and expedite production at its greenfield project in Kalinganagar. It added that expansion plans at Jamshedpur were on track. “The Kalinganagar plant will be operational by the mid of fiscal 2014. The Jamshedpur plant will run at a capacity of 9.7 million tonnes from January 2013," said H.M. Nerurkar, Tata Steel’s managing director.

Tata Steel’s operating profit margin of steel sold in India also suffered due to the high cost at which it was purchasing coking coal at present. Chatterjee said that once the new coke oven at Jamshedpur is operational (expected in January 2013), it would lead to substantial cost savings for the company, thereby improving margins.

Commenting on Tata Steel’s overall debt of $10.4 billion, Chatterjee said that for the current fiscal, the company had already fulfilled 80% of its debt obligation and “there is no repayment pressure" right now.

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Published: 09 Nov 2012, 04:19 PM IST
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