Tata Steel: Fortifying its presence

Cost-control measures, profitability help company’s fourth-quarter consolidated operations

The fourth quarter marked a turnaround for Tata Steel. The company had a come-back from a sluggish performance in the year marred by lower realisations. A synergistic performance of domestic and European operations helped Tata Steel post healthy numbers.

Tata Steel India’s average blended realisation of Rs 41,800 a tonne pushed revenues to Rs 7,100 crore in the March quarter. Also, a reduction in raw material costs (21.7 per cent sequentially) helped earnings before interest, taxes, depreciation and amortisation (Ebitda) grow 38.5 per cent sequentially to Rs 2,890 crore. Lower interest costs and higher other income buoyed net earnings by 48.2 per cent to Rs 2,160 crore.

Corus, too, joined the party with a profit in its consolidated result for the quarter. International operations’ ebitda of Rs 1,643 crore, against losses in the same period in the previous year, helped Corus to come out of the red. Improved capacity utilisations and cost-saving measures did the trick in the March quarter. However, for the entire year, the group posted a loss of Rs 2,009.22 crore, against last year’s profit of Rs 4,950 crore due to lower revenues and operating profit.

Going forward, steel prices are expected to remain volatile, as global uncertainties continue to bog markets. Analysts point that the Chinese have stopped building excess capacities and will be reducing exports, which will eventually cause the price fall. In the European market, consumption is likely to grow 19 per cent in CY10. Inventory levels are still low, with imports subdued and currency weak. Given this background, the Tata Group will be looking at a capacity utilisation of 85 per cent with cost-saving measures. So, raw material prices will be the key consideration factor. Analysts expect that a sharp fall in prices will also lead to a fall in raw material prices. Hence, this will nullify the impact on margins. In the long term, the profitability mix is seen as continuously improving for Tata Steel.

Tata Steel India’s contributions, which are more profitable, will increase to 40 per cent from 20 per cent with capacity going up 7-10 million tonnes in a year’s time. Non-integrated British operations are being pruned and capacity will fall from 20 million tonnes to 15 million tonnes.