Hot rolled steel moves along a conveyor at the Tata Steel Ijmuiden BV plant. (Photographer: Jasper Juinen/Bloomberg)

Q1 Results: Tata Steel’s Profit More Than Doubles

Tata Steel Ltd.’s quarterly profit more than doubled as demand rose, driven by the automotive industry and the government’s infrastructure push.

The Mumbai-based steelmaker’s net profit rose to Rs 1,954 crore in the three months to June, a jump of 112 percent from the year-ago period, according to its exchange filing. That compares with the Bloomberg consensus estimate of Rs 2,700.4 crore. The company incurred an exceptional loss of Rs 343.6 crore in the quarter, which includes a Rs 114.9-crore loss arising on sale of the group’s stake in one of its joint ventures in Southeast Asia.

Revenue rose 27.5 percent year-on-year to Rs 37,832.8 crore, compared with the estimate of Rs 35,923.5 crore.

“Tata Steel delivered a strong performance across all geographies on the back of strong steel demand and buoyant spreads,” Chief Executive Officer TV Narendran said in a media statement accompanying the filing. “All verticals saw strong growth, with our automotive and branded products segments now contributing to 19 percent and 33 percent of total volumes, respectively.”

The steelmaker, which is now focusing on the domestic market, was helped by an improving economy that has started gaining momentum. The domestic delivery volume for Tata Steel rose 13.7 percent over the year-ago period, “much stronger” than the 9.2 percent growth in India, the company said.

We expect underlying steel demand to be strong, particularly in India. However, the rising trade tensions and the impact on the global economic momentum is a cause of concern.
TV Narendran, chief executive officer, Tata Steel Ltd.

Tata Steel reported better realisations and a strong operating performance across geographies. Earnings before interest, tax, depreciation and amortisation rose 30 percent year-on-year to Rs 6,468 crore. Operating margin expanded to 17.1 percent.

  • Consolidated volume up 12.4 percent to 6.55 million tonnes.
  • Consolidated Ebitda/tonne at Rs 9,874.
  • Consolidated realisation/tonne stood at Rs 57,151.
  • Gross debt increased by Rs 22,000 crore in the quarter.

Approves Fundraise

The board approved issuing up to Rs 12,000 crore worth of non-convertible debentures on private placement basis in one or more tranches. The funds would be used for capital expenditure, to repay debt and general corporate purposes, Tata Steel said. Narendran was re-appointed as the managing director and chief executive officer for five years effective from Sept. 19, the company said.

Also read: NCLAT Upholds Bhushan Steel Sale To Tata Steel 

Here are the highlights from Tata Steel management’s conference call:

  • Reduced exports sales in first quarter due to strong domestic demand.
  • Domestic market prices are Rs 2,000-3,000 higher than export markets.
  • Other expenses of Rs 5,759 crore includes on-offs related to rates and taxes.
  • Demand in Southeast Asia region expected to remain sluggish in 2018.
  • Demand in Europe to grow by 2.1 percent in 2018 driven by growth of the construction and mechanical sector.
  • Gross debt in Q1FY19 at Rs 116,615 crore as against Rs 92,147 crore in Q4FY18.
  • Ebitda would have been higher had it not been for losses of other Ebitda.
  • Other Ebitda loss stood Rs 400 crore versus a gain of Rs 743 crore.
  • Other Ebitda adversely affected due to unrealised non-cash adverse forex movement at the key Southeast Asia financing entities.

The company management also spoke to billionaire investor Rakesh Jhunjhunwala, who has been bullish on the steelmaker for sometime and has stockholding in a few Tata Group entities, over a conference call on its acquisition of Bhushan Steel Ltd. under the insolvency and bankruptcy proceedings.

Here are the highlights:

  • Tata Steel to cover interest cost and incur cash flows within first year of Bhushan Steel ’s operations.
  • The company would take two years to ramp up Bhushan Steel capacity to 5 MTPA from present 3.5 MTPA.
  • Typically need 1.6 tonnes of iron ore to produce 1 tonne of steel.
  • Realisation of Bhushan Steel higher than Tata Steel.
  • ·Bhushan Steel’s Ebitda per tonne to remain higher than present quarter at Rs 9,800.

Shares of Tata Steel declined for the third straight trading session and is poised for its longest losing streak in over a month. The stock fell as much as 1.1 percent to Rs 562.45 during intra-day trade.