Tata Steel Profit Surges to Highest in 9 Years on India Push

(Bloomberg) -- Tata Steel Ltd.’s quarterly profit rose to the highest in nine years as India’s oldest steelmaker reaped gains from higher prices and its focus on the domestic market, where a government push to improve infrastructure has raised demand.

  • Group net income surged nearly four-fold to 36 billion rupees ($495 million) in the three months ended Sept. 30, from 9.76 billion rupees a year earlier, according to a statement Tuesday. That beat the average estimate of 26.1 billion rupees in a Bloomberg poll of eight analysts. Revenue climbed about 34 percent to 435.4 billion rupees.

Key Insights

  • Profits rose as Tata Steel shifted its focus to the growing Indian market, where it plans to double capacity within five years and has snapped up some indebted mills.
  • Its European operations, which are in the process of being merged with Thyssenkrupp AG, face an in-depth probe over concerns that the deal could reduce competition. The Mumbai-based company has said it will continue discussions with the European Commission to address concerns and secure approvals for the planned joint venture.
  • Analysts see higher costs and rising debt as key risks to the company’s outlook in addition to the European Union’s investigation of the joint venture with ThyssenKrupp.
  • Production at its India operations was steady at 3.27 million tons in the quarter. Its latest acquisition, Bhushan Steel, added another 1.1 million tons to the crude steel output, more than making up for a production drop at its European unit.
  • Stronger steel prices buoyed the company’s earnings. Average prices of hot-rolled and rebar steel increased 8 percent and 9 percent, respectively, in the period from a year earlier, according to Bloomberg Intelligence.

Market Reaction

  • Tata’s shares ended 1.1 percent higher in Mumbai on Tuesday, paring losses of 15 percent this year.
  • Analysts have 25 buy recommendations on the company, 3 holds and 1 sell, according to data compiled by Bloomberg.

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  • Profit rose to the highest since the quarter ended Sept. 30, 2009.
  • The company is positive on the steel demand outlook for India although the risk of trade wars and increasing imports remain a concern, Chief Executive Officer T.V. Narendran says in the statement.
  • Tata Steel aims to cut leverage by about $1 billion in the next 12 months through internal cash, Chief Financial Officer Koushik Chatterjee says.
  • The company is in constructive engagement with the European Commission on the Thyssenkrupp joint venture and that the logic for consolidation in Europe remains strong, Chatterjee tells reporters separately at a press conference in Mumbai.
    • Tata Steel is also looking at the potential sale of an electrical steel unit in Europe and Canada, he adds.
  • The company says its India sales volume stood at 4.32 million tons, comprising 58 percent of total group deliveries.

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