Back in black: Tata Steel turns profitable after five quarters

Tata Steel records Q3 net profit at Rs 232 crore

After a gap of five quarters, Tata Steel reported a consolidated net profit for the December 2016 quarter at Rs 232 crore against loss of Rs 2,748 crore in the same period last year. Bloomberg consensus estimate had pegged the figure at Rs 130.7 crore for the December quarter.

Strong performance in Indian operations, both in terms of revenue and profit, was the key highlight in the quarter.

The company’s net sales (excluding excise duty) in the period under review stood at Rs 27,844 crore, up 13.4 per cent year-on-year led by 39.6 per cent rise in domestic net sales to Rs 12,498 crore.

Despite demonetisation, the company’s domestic net sales grew 19 per cent sequentially. These were ahead of standalone revenues of Rs 12,110 crore estimated by analysts for the December quarter, according to a Bloomberg poll.

At consolidated level, Bloomberg consensus estimates had pegged Tata Steel’s top line at Rs 29,436 crore. Non-India operations were largely the reason behind missing the estimates.

“The company showed consistent improvement in the performance for the December quarter at the consolidated level backed by expansion at Indian operations and a turnaround of European Ebitda from negative 6 per cent in the previous year to positive margin of 5 per cent during this quarter,” Koushik Chatterjee, group executive director (finance and corporate) was quoted as saying.

For domestic operations, Ebitda improved to Rs 3,393 crore, up 70 per cent sequentially and 110 per cent year-on-year on the back of supportive realisations, strong growth in deliveries and ramp-up of Kalinganagar plant. Ebitda is earnings before interest, tax, depreciation and amortisation. This figure was way ahead of analysts’ estimate of Rs 2,720 crore — higher by Rs 673 crore.

Despite the note ban’s impact, India operations were driven by higher international prices and increased trade barriers, fall in net steel imports, all of which supported domestic demand and supply. Tata Steel expects the demand to pick up as the demonetisation effect wears out.

For Europe, deliveries of 2.37 million tonnes (mt) were three per cent higher sequentially, but 13 per cent lower year-on-year, following the strategic decision to focus on higher-value added products in UK. This coupled with a more competitive pound, lower UK cost-base and more favourable market conditions, helped European Ebitda for the quarter improve to Rs 610 crore, compared with a loss of Rs 757 crore a year earlier. However, sequentially, the Europe operations’ Ebitda fell Rs 425 crore from Rs 1,035 crore in the September quarter, due to higher raw material and energy costs.

Tata Steel’s overall Ebitda at Rs 3,550 crore, nevertheless, was ahead of Rs 342-crore seen in the year-ago quarter and grew 14 per cent sequentially. Consolidated Ebitda is at a multi quarter high (the highest in at least seven quarters), though a shade lower than expectations of Rs 3,612 crore.

“Tata Steel recorded strong sales this quarter as the strength of our franchise helped us counter headwinds due to demonetisation. While the broader market was affected by lower rural sales and adverse consumer sentiments, we were able to increase overall volumes by 14 per cent sequentially and register strong growth across all our target customer segments,” the release quoted T V Narendran, managing director of Tata Steel India and South East Asia operations.

The new Kalinganagar steel plant commissioned in May 2016 crossed 1.5 mt of hot metal and 1 mt of hot rolled coil production. This helped domestic steel volume to grow to 2.99 mt from 2.35 mt in the year-ago quarter and 2.62 mt in the previous quarter.

“Our Kalinganagar facility continues to ramp up smoothly and we are well positioned to serve the increase in demand due to the expected thrust on infrastructure in FY18. Our SEA (South East Asia) operations delivered stronger operating performance this quarter due to a combination of better market conditions, cost rationalisation and higher exports,” Narendran added.

Tata Steel’s gross debt stood at Rs 84,752 crore as on December 31, while consolidated net debt was Rs 76,680 crore.

In Europe, the company continued its restricting efforts as it reached an agreement with the trade unions to progress towards the closure of its defined benefit pension scheme to future accrual and take an important step towards a more sustainable future. Ballot on the scheme is currently open. Tata Steel UK also signed a Letter of Intent (LoI) with Liberty House Group to enter into exclusive negotiations for the potential sale of its Specialty Steels business for an enterprise value of £100 million.