Mumbai: Tata Steel Ltd on Tuesday reported a surprise March quarter consolidated loss of Rs1,168 crore as it took a one-time charge related to the closure of its British pension scheme. The steelmaker said its UK arm was close to resolving pension issues, which brings the unit a step closer to a potential merger with ThyssenKrupp AG .
The March quarter loss was narrower than the Rs3,042 crore loss Tata Steel reported a year ago. Twelve analysts polled by Bloomberg had forecast the steelmaker to report a consolidated net profit of Rs988.4 crore.
Tata Steel’s revenue rose 30.4% to Rs35,305 crore as the company sold more steel products in India. Steel deliveries in the local market increased to 6.83 million tonnes in the three months ended March compared to 6.32 million tonnes a year ago.
The company was able to sell steel at a higher price. This lifted India revenue to Rs17,113.1 crore, up 45.8% from a year earlier. Its European operations, too, reported a 17.4% increase in revenue and an operating profit of Rs1,972 crore, compared with a loss of Rs355 crore a year earlier.
Despite raw material costs rising by more than half, Tata Steel was able to triple its consolidated operating profit to Rs6,982 crore. But an exceptional non-cash charge of Rs4,069 crore, mostly relating to the shutdown of its British pension scheme, eroded profit.
“Our current focus is certainly on the pension de-risking and that takes a lot of time and effort because it is an intense process and a multi-stakeholder process,” said Koushik Chatterjee, group executive director (finance, corporate and Europe) at Tata Steel. “The board of the company is evaluating and exploring all the options. Therefore, let us first focus on the pension issue and then address the other issues.”
Tata Steel UK and the British Steel Pension Scheme trustees have agreed in principle on the key terms of a regulated apportionment arrangement, the company said in the statement. If an agreement is reached and the necessary approvals are obtained, Tata Steel will pay a settlement of £550 million to the British Steel Pension Scheme and a stake of 33% in Tata Steel UK, the company said in a statement.
It will also sponsor a new closed pension plan, the statement added.
This could potentially pave the way for a merger of Tata Steel UK with ThyssenKrupp or other steelmakers, which Tata Steel has long been exploring to cut losses in an oversupplied steel market.
Tata Steel also said it was looking at capital expenditure of Rs7,000 crore in the current financial year. It had net debt of Rs73,000 crore at the end of March.
“We have finished a significant part of the Orissa project wherein we spent Rs6,000 crore last year. Going forward capex will taper off..,” said Chatterjee.
Analysts say the steel cycle is gradually turning in India with strong regulatory support after the cabinet cleared a policy plans to treble India’s steel production capacity by 2030 and offered incentives to local producers.
Bloomberg contributed to this story.