Q3 Results: Tata Steel’s Profit Surges As Acquisitions Start Paying Off

Tata Steel Ltd.’s quarterly profit rose as the steelmaker’s increased capacity from domestic acquisitions aided its earnings.

Net profit rose 76.5 percent over last year to Rs 2,284.1 crore in the December quarter, according to its stock exchange filing. Analyst estimates tracked by Bloomberg had expected profit at Rs 2,231.3 crore.

The growth was also inflated by a one-time charge that weighed on Tata Steel’s profit in the same quarter last year.

• Revenue rose 23.2 percent to Rs 41,220 crore.
• Operating profit increased 18 percent to Rs 6,723.4 crore.
• Margin narrowed 70 basis points to 16.3 percent.

Tata Steel has been divesting stake in its foreign businesses to move back focus on the domestic market. In May, Tata Steel made its biggest purchase since acquiring Britain’s Corus Group Plc by buying insolvent Bhushan Steel Ltd. That acquisition helped increase steel production by 34 percent over last year to 4.38 million tonne. Deliveries from India operations stood at 3.89 million tonnes and account for over half of its consolidated volumes.

The steelmaker also realised better prices for its products in India. The operating profit from its India operations stood at Rs 16,407 per tonne of steel. That compares with Rs 10,331 per tonne in its consolidated business.

Better price realisations and volumes helped Tata Steel cushion the impact of falling steel prices across the globe. Prices in China, the global benchmark, fell more than 12 percent in two months to $490 per million tonnes, according to Bloomberg. The decline was steep in November, and is mainly due to lower-than-anticipated winter shutdown in China—supplier of more than half the world’s steel—amid rising trade tensions between the world’s two largest economies.

“Tata Steel is committed to growing its India footprint while focusing on benchmark operational performance, superior market presence, strong customer relationships and sustainability,” said TV Narendran, chief executive officer and managing director, in a media statement. “Despite a sharp drop in international steel prices, we were able to maintain our overall realisations and increase our volumes significantly in India.”

The steelmaker in September acquired smaller peer Usha Martin Ltd. as it looks to double capacity by 2022. The deal, Tata Steel said, is expected to be completed in the ongoing quarter. It’s also planning to expand its Kalinganagar, Odisha unit. That’s when the company offloaded assets in the U.K.—a legacy of its troubled Corus buyout—and combined its European business with the steel arm of Germany’s Thyssenkrupp AG.

The steelmaker is planning to raise its India capacity to 30 million tonnes per annum by 2025 from 13 MTPA. Its existing projects will help increase capacity to 24.6 MTPA by 2022 and the remaining 5.4 MTPA is expected to come through mergers and acquisitions.

Lower Debt

Tata Steel today said its gross debt reduced by Rs 9,083 crore, including deleveraging of more than Rs 6,000 crore.

The company repaid Rs 3,000 crore from Tata Steel BSL Ltd. (erstwhile Bhushan Steel Ltd.) since its acquisition as part of the “overall deleveraging”, Executive Director and Chief Financial Officer Koushik Chatterjee said.

Also, the proceeds from the divestment of a 70 percent of stake in Tata Steel’s Southeast Asia business and from the sale of a residual holding in TRL Krosaki Refractories Ltd. will be used for further deleveraging, Chatterjee said. The company sold its 26.62 percent equity stake in TRL Krosaki for Rs 305 crore.

The divestment of Tata Steel’s stake in its Southeast Asia entities will be completed by the first quarter of 2019-20, it said. The proceeds will be used to further lower debt by $500 million, the company said.

Thyssenkrupp Deal

Tata Steel’s joint venture with German steel giant Thyssenkrupp invited a probe by the European Commission with respect to “certain specialty flat carbon steel and electrical steel products” in October. In its conference call today, the company said it will receive a letter of objection for the Thyssenkrupp deal on Monday. The deal is estimated to be completed by April 2019, it said.

No Revised Bid For Bhushan Power & Steel

The company in its conference call said the committee of creditors will take a final call on Bhushan Power & Steel Ltd. case and that Tata Steel will not revise its bid—the highest in the first round. The National Company Law Appellate Tribunal had ruled last week that JSW Steel Ltd.’s revised offer for Bhushan Power was valid under the Insolvency & Bankruptcy Code.

Other Highlights

• Consolidated steel production rose 11 percent over last year to 7.23 million tonnes.
• Deliveries rose 7 percent to 6.99 million tonnes.
• Gross debt was reduced by Rs 9,083 crore during the quarter.
• The acquisition of Usha Martin's steel business through Tata Sponge Iron Ltd. is expected to close in the ongoing quarter.