Tata Steel Reaps Bumper Profit on Price Rally, Demand Upturn
Silos stand at the steel works operated by Tata Steel Ltd. in U.K. (Photographer: Chris Ratcliffe/Bloomberg)

Tata Steel Reaps Bumper Profit on Price Rally, Demand Upturn

Tata Steel Ltd. swung to a quarterly profit as an economic recovery after a nationwide lockdown drove a rebound in steel consumption and prices rallied globally.

Group net profit jumped to 66.44 billion rupees ($899 million) in January to March, compared with a loss of 14.81 billion rupees a year earlier, it said Wednesday. Sales increased 39% to 499.77 billion rupees.

Key Insights

  • A rally in steel prices from Asia to North America has been a boon for steelmakers. South Korea’s Posco, one of the top suppliers outside China, posted its highest quarterly profit since 2011 aided by stimulus and the rollout of coronavirus vaccines, and expects the recovery to continue in the second half.
  • Domestic demand, a focus on debt reduction and strategic growth of Indian assets may support operations and enhance Tata’s business profile despite any near-term operating pressure, according to Bloomberg Intelligence.
    • Before a new wave of infections made India the global hotspot for Covid-19 cases, the International Monetary Fund had forecast the country would be the fastest growing major economy this year, expanding at 12.5%, while the central bank was more cautious, estimating growth at 10.5%. Those projections could come under risk if localized lockdowns in some of the most industrialized states linger.
  • “The second wave of COVID-19 in India is a risk,” Chief Executive Officer T.V. Narendran said at a post-earnings briefing, adding the diversion of oxygen for medical purposes won’t significantly impact production.
    • Demand from steel-consuming industries may be more impacted by the ban on the use of industrial oxygen, he said.
    • Indian mills can step up exports if domestic demand slows and the company will look to ship 10% to 15% of its production overseas this year.
  • Tata Steel is in the process of separating its U.K. and Netherlands units as the Indian steelmaker seeks to reduce drag from the European operations.

    • The mill is “certainly not looking at embarking on any strategic actions on Netherlands at this point of time or in Europe,” and the focus is on the separation, Chief Financial Officer Koushik Chatterjee said at the same event.

Market Reaction

  • Shares of Tata rose 0.6% in Mumbai before the results were announced, extending this year’s rally to 66%.
  • Analysts have 27 buy recommendations on the stock, 4 holds and 1 sell, according to data compiled by Bloomberg.

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  • Tata Steel cut its net debt by 28% to 753.89 billion rupees in the year ended March and plans to slash it further by more than $1 billion this year.
  • The company said it has restarted its 5 million ton a year expansion in Kalinganagar and expects to complete it by March 2024. The board also approved a final dividend of 25 rupees a share.

©2021 Bloomberg L.P.

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