Tata Steel Q3 Results: Surprise Loss As Weak Demand Conditions Persist
An employee stands near a blast furnace (Photographer: Krisztian Bocsi/Bloomberg)  

Tata Steel Q3 Results: Surprise Loss As Weak Demand Conditions Persist

Tata Steel Ltd. reported a surprise loss in the quarter ended December as domestic demand failed to pick up and performance of its European business deteriorated.

Net loss stood at Rs 1,029.1 crore compared with a profit of Rs 2,333.4 crore a year ago, India’s oldest steelmaker said in an exchange filing. A consensus of analysts tracked by Bloomberg had pegged the profit at Rs 21 crore.

The loss was exacerbated due to exceptional expenses worth Rs 328.6 crore. These included impairment loss and restructuring provisions in some European assets, provision for some statutory demands for its Indian operators and employee separation compensation.

  • Revenue fell 8.6 percent to Rs 35,520 crore, compared with the Rs 35,024.5-crore forecast.
  • Operating profit fell 46.1 percent to Rs 3,619.8 crore.
  • Margin narrowed 710 basis points to 10.2 percent.
  • Other income slumped 57 percent to Rs 92.9 crore.

Steel consumption in the world’s second-biggest producer took a beating as construction activity slowed on the back of a general election and an extended monsoon. India’s automakers—on which the steel sector depends for 10-12 percent demand—too, are witnessing the worst slump in sales in more than two decades.

“During Q3FY20, global economic growth further slowed down amid heightened concerns of a U.S.-China trade war. Regional steel prices were down as steel demand was affected by weaker industrial output in key markets,” Tata Steel said in its media statement. “In Europe, the overall slowdown was more pronounced due to seasonal weakness and elevated levels of unfairly priced imports.”

The European business reported an operational loss of Rs 956 crore, while analysts were expecting an operational profit of Rs 107 crore. “Our European operations made a loss as it felt the brunt of the overall slowdown and the consequent shrinking of spreads,” Chief Executive and Managing Director TV Narendran said in the statement. “This adversely affected consolidated performance.”

Still, there’s a silver lining. Makers of the alloy in India increased prices during the quarter, though they are still 23.6 percent lower than the year-ago period.

The rise in steel prices has been seen across the globe after China—the world’s largest producer—capped output during winter to curb pollution. Indian steel mills still have enough room to raise prices further. That’s because domestic steel, according to Edelweiss Securities, is trading at a 10 percent discount to Chinese landed rates or imported price inclusive of all duties. Citi Research estimated that for Tata Steel, every increase of Rs 1,000 per tonne could improve its operating profit by 10 percent.

It’s also expected that things will improve in the upcoming fiscal. Improved capacity utilisation, revival in demand and recovery in prices will keep Indian steel chasing the world’s largest producer, Moody’s Investors Services said.

Sales Volume Highlights

  • Tata Steel India: 3.58 million tonnes versus 2.97 million tonnes.
  • Bhushan Steel: 1.254 million tonnes versus 0.9 million tonne.
  • Tata Steel Europe: 2.31 million tonnes versus 2.35 million tonnes.
  • Tata Steel South East Asia: 0.59 million tonne versus 0.57 million tonne.

Shares of Tata Steel closed 1.46 percent lower ahead of the results. That compares with the benchmark Nifty 50 Index’s 0.4 percent drop.

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