Tata Steel Turns Profitable After Four Quarters
Rising steel prices and more demand helps Tata Steel post a profit in the third quarter.
Tata Steel Ltd. posted a net profit in the third quarter to break its loss making streak over the previous four quarters.
The Mumbai-based company’s net profit stood at Rs 231.9 crore in the three months through December from a restated loss of Rs 2,747.7 crore a year ago. The company had suffered an exceptional loss of Rs 480.6 crore in the third quarter last year. The bottomline also beat analyst estimates by 77 percent, who had pegged it at Rs 130.7 crore.
Rise in steel prices coupled with higher demand led to a revenue growth of 14 percent to Rs 29,279 crore.
The earnings before interest, tax, depreciation and amortisation (EBITDA) jumped four times compared to last year, but fell short of analyst expectations by 2.1 percent. EBITDA for the December ended quarter stood at Rs 3,539.3 crore, while EBITDA margin expanded by 879 basis points to 12 percent.
Analysts had pegged the EBITDA figure at Rs 3,615.2 crore in the third quarter.
Though the gross debt increased marginally in the third quarter, finance cost surged 40 percent, compared to last year, to Rs 1,387.4 crore.
Consolidated gross debt stood at Rs 84,752 crore in the third quarter as against Rs 84,316 crore in the September ended quarter. Cash and cash equivalent decreased to Rs 15,000 crore from Rs 17,650 crore in the second quarter.
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.Koushik Chatterjee, Group Executive Director (Finance and Corporate)
Standalone Operations
Profit after tax from standalone operations—which reflects its business in India—stood at Rs 1,204.6 crore, rising from Rs 298.4 crore in the corresponding quarter last year. Sales rose by 39 percent, compared to last year to come in at Rs 14,106 crore.
EBITDA jumped two times to Rs 3,378.9 crore supported by higher realisations and strong growth in deliveries after production from its Kalinganagar plant was ramped up. The Kalinganagar plant has crossed its FY17 production target in the first nine months of the financial year. While the underlying EBITDA margins expanded by 822 basis points to 24 percent.
The company recently acquired iron ore plants from Brahmani River Pellets Ltd. for Rs 900 crore which in turn would reduce their raw material cost.
U.K. Assets
On a yearly basis, in Europe, sales declined 6.3 percent to Rs 12,537 crore, but its European division posted an earnings before interest and tax of Rs 610.2 crore versus a loss of Rs 757 crore in the third quarter last year. Company attributed the positive EBIT to a “more competitive Pound, a lower U.K. cost base and more favourable market conditions.”
The company has not only entered into exclusive talks with the Liberty House Group to sell its U.K. speciality steels business, but also aims to close the 15 billion pound British Steel Pension Scheme (BSPS) for future contributions before a possible 60 million pound payment deadline on March 31, 2017, in order to plug mounting deficit.
The management says its U.K. division has reached an agreement with trade unions to progress towards the closure of its defined benefit pension scheme to future accrual and take an important step towards a more sustainable future.
The strategic initiatives in the U.K. on the pensions continue to be an important priority for the company and we welcome the Unions recommendation to its members to support the ballot process that is currently on to close the BSPS to future accruals.Koushik Chatterjee, Group Executive Director (Finance and Corporate)
The company is also in talks with British Steel Pension Trustees and the Regulator to develop a “structural solution” for the U.K. pensions in coming months. Tata Steel in its board meeting also appointed N Chandrasekaran as the company’s chairman, less than a month after the group holding company Tata Sons, appointed him as its chairman.
Ahead of its earnings, share prices of Tata Steel fell 0.13 percent to Rs 472.8 apiece. Though Tata Steel has outperformed, its benchmark, BSE Metal Index, in the last 12-months, by giving a return of 102 percent, only 39 percent of the analyst tracked by Bloomberg have a ‘buy’ rating on the stock.