Tata Steel Q2 consolidated net profit at Rs 31.16 bn, up three folds YoY

India operations report EBITDA/tonne of Rs 19,000, highest in six years

Tata Steel, the country’s oldest steel producer, on Tuesday reported a higher-than-expected consolidated net profit of Rs 31.16 billion in the September quarter, up threefold from the corresponding period last year on the back of increased revenues, which also included the recently acquired Bhushan Steel.

The company had reported a bottom line of Rs 10.18 billion in the year-ago period. Its net sales stood at Rs 429.46 billion, up 34 per cent from the same period last year on better realisations and increased volumes, with Bhushan Steel contributing full quarter for the first time since acquisition.

According to Bloomberg estimates, the company’s consolidated top line was seen at Rs 408.05 billion, while the bottom line was expected to be at Rs 26.06 billion in the quarter gone by.

“Tata Steel group has delivered extremely strong results this quarter, driven by robust operational performance and favourable business conditions in India.  Despite a seasonally weaker period, this quarter we sold 4.32 million tonnes (mt) across Tata Steel standalone and Bhushan Steel,” T V Narendran, chief executive officer and managing director, told reporters at the earnings press conference held here on Tuesday.

Meanwhile, Tata Steel India operations reported earnings before interest, tax, depreciation and amortisation (Ebitda) per tonne of Rs 19,000, which was the highest in six years. The Ebitda margin of the domestic operations was at 34 per cent in the period under review.

“This has been one of the best-ever quarters for Tata Steel India on the back of strong operating and market performance,” said Koushik Chatterjee, executive director and chief financial officer. “The Bhushan Steel integration and synergies have also been on track and that is reflected in the Bhushan Steel Ebitda margin of Rs 10,291 per tonne,” he added.

However, at the consolidated level, due to unplanned shutdown and stoppages both in IJmuiden and Port Talbot at the company’s European operations, the Ebitda reported in the quarter gone by stood at 20 per cent.

The company plans to focus on the domestic market to increase its revenue stream. “We continue to work on our strategy of increasing our Indian footprint as we ramp up operations at Bhushan Steel and implement our 5 mt expansion at Tata Steel Kalinganagar. In line with this, we have also signed definitive agreements to acquire the 1-mt steel business of Usha Martin, which will strengthen our longs products capability,” informed Narendran.

Meanwhile, brokerages said the depreciating rupee could have helped considerably in beefing up the company’s India margins and hence, if the Ebitda would be sustainable in the coming quarters remain to be seen.

With regard to the company’s status on joint venture (JV) with Thyssenkrupp, Narendra said, “We are making good progress on the TSE Thyssenkrupp JV. We are in discussions with the European Commission for the phase II review which typically takes 90 days.”

“We are in constructive engagement and are addressing all concerns of European Commission as well as Thyssenkrupp,” Chatterjee added.

During the quarter, Tata Steel group generated operating cash flows of Rs 77.69 billion. The liquidity position of the group remains strong at Rs 264.70 billion, including Rs 144.78 billion of cash and cash equivalents.

“One of our key priorities is to reduce our leverage by around a billion dollars in the next 12 months from the internal cash flows and other strategic initiatives on the portfolio,” said Chatterjee.

The company paid off Rs 10 billion-debt taken for acquisition of Bhushan Steel in the last few months.

As of September 30, the company’s consolidated net debt stands at Rs 1,040 billion, while its gross debt was at Rs 1,180 billion. The management said it will not look to have any major capex for the newly acquired Bhushan Steel and may also look to monetise its portfolio in order to lower the debt on its books.