Mumbai: Tata Steel Ltd reported fourth-quarter (Q4) profit rose to a record on higher sales and prices, which should help the company fund the purchase of Corus Group Plc., the biggest takeover by an Indian company. Net profit rose to Rs1,103 crore in the three months ended 31 March, or Rs19 a share, from Rs783 crore, or Rs14.2, a year earlier, the Mumbai-based company said on Thursday. Sales rose 22% to Rs4,980 crore.
A rally in Asian steel prices may help chairman Ratan Tata sustain the fastest pace of earnings expansion in two years and convince investors of the merit of spending more than 10 times annual profit to buy Corus.
The UK steel maker raised prices twice since Tata agreed to pay $12 billion (Rs49,200 crore) in January. “International prices are looking good and the Corus buy is certain to bring pricing power to Tata Steel,” U.P. Bhat, a fund manager at Canbank Mutual Fund, said.
Arcelor Mittal, the world’s biggest steel maker, on Wednesday, posted first-quarter profit of $2.25 billion, beating analyst forecasts. For the full year (2006-07), Tata Steel’s net sales rose to Rs19,763 crore from Rs14,153 crore, a 39.64% increase, and net profit, from Rs3,119 crore to Rs4,222 crore, a 35.36% increase.
The Tata-Corus combination, formed in the steel industry’s second-biggest takeover behind Mittal Steel & Co.’s $38.3 billion purchase of Arcelor SA last year, will sell two-thirds of its output in Europe. The deal lifted Tata to sixth from 56 in global rankings. Operating profit margin for the combined entity will widen to 25% by 2012 from 13%, said Tata managing director B. Muthuraman.
Output will increase to 40 million tonnes from 25 million tonnes, he said. “Prices in Europe have grown 15% in the last three months, compared with 13% for Asia and flat growth in the US,” said Rakesh Arora, an analyst with Macquarie Securities Ltd.
In India, prices in the March quarter were 8% more on average from a year ago as the world’s second-fastest pace of economic growth boosted steel demand, Muthuraman said. “Indian companies are adding capacity, housing stock in rising and we are putting up infrastructure, all of which is steel-heavy,” added Prateek Agrawal, head of equities at ABN Amro Asset Management. “Steel demand in the Indian space is very strong,” he said.
Tata will contribute $4.1 billion and banks will arrange $6.14 billion in debt and provide $2.66 billion as a bridge loan to fund the Corus purchase. Both Moody’s Investors Service and Standard & Poor’s have said they may lower Tata’s debt rating.
Still, the company’s shares have climbed 46% in the past three months, beating bigger rivals, on expectations that higher metal prices may help repay loans.