Tata Steel Profit Falls as Weak Prices Offset Volume Gain

(Bloomberg) -- Tata Steel Ltd. posted a 76 percent fall in profit as lower prices countered higher production that saw the company become India’s top steelmaker.

  • Group net income dropped to 24.3 billion rupees ($346 million) in the January-March quarter, according to a statement Thursday. Consolidated figures don’t include Tata’s Southeast Asia operations as they are in the process of being sold.

Key Insights

  • Tata joins South Korea’s biggest mill Posco in reporting a drop in profit amid projections of a slowdown in demand growth this year and next by the World Steel Association.
  • Tata jumped two spots to become the biggest steel producer in India in the year ended March after it acquired distressed mill Bhushan Steel Ltd. That’s aided its ambitions of doubling production locally even as it sheds overseas assets.
  • The Mumbai-based company is betting on growing demand in the domestic market because of government spending on building infrastructure.
  • Higher imports, muted demand from the auto sector -- which comprises 20 percent of India’s steel usage -- and lower product price are key concerns for steel companies, according to Edelweiss Securities Ltd. Domestic prices of hot-rolled coil and steel rebars fell as much as 5 percent from a year earlier during the quarter.

Market Reaction

  • Shares of Tata fell 2.8 percent in Mumbai on Thursday, extending losses to 13 percent in the past year.
  • Analysts have 20 buy recommendations on the company, 1 hold and 5 sell, according to data compiled by Bloomberg.

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  • Sales climbed 26 percent from a year earlier to 424.2 billion rupees.
  • Tata Steel is targeting a further reduction in gross debt by another one billion dollars by the end of this fiscal year, Chief Financial Officer Koushik Chatterjee said separately at a press conference.
  • The company said gross debt decreased by 87.81 billion rupees during the fourth quarter.
  • Tata Steel BSL Ltd. holders will get one share of Tata Steel Ltd. for every 15 shares they hold in the company, which was formerly known as Bhushan Steel Ltd.
  • The process for selling a 70 percent stake in the company’s Southeast Asia operations are expected to be completed this quarter.
  • The company is still in discussion with the European Commission on a remedy package for its joint venture with Thyssenkrupp AG, Chatterjee said.

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