Mumbai: Tata Steel Ltd, the world’s seventh largest steel maker by output, Wednesday beat Street expectations with a near 72% rise in consolidated net profit for the fiscal fourth quarter, aided by better prices, higher volumes, a drive towards a higher value product mix and the sale of a unit in the UK.
The steelmaker, part of the $67.4 billion Tata group, predicted steel prices will likely remain stable at current levels but warned that the costs of inputs such as coal and iron ore weren’t likely to come off from elevated levels.
“It is possible to a great extent that prices stay stable while raw material costs won’t come down, so there are chances for quite some squeeze also,” Karl-Ulrich Kohler, managing director and chief executive of Tata Steel Europe, said at an earnings conference.
Steelmakers paid 74% more for coking coal in the previous quarter after record rains slashed production in Australia’s Queensland, the world’s largest exporter of the fuel. Cash iron ore prices at Tianjin port in China rose 36% on average in the period.
Consolidated net profit for the January-March quarter rose to $937 million from $546 million in the year-earlier period. The earnings beat the average estimate of Rs 1,810 crore ($399 million) of 25 analysts polled by Bloomberg. Sales rose 23% to $7.59 billion.
Tata Steel made a one-time gain of $561 million selling its Teesside Cast Products unit in the UK to Thailand’s Sahaviriya Steel Industries Public Co. at the end of March.
The company’s shares fell 0.9% to Rs 561.20 on the Bombay Stock Exchange, in line with the decline in the benchmark Sensex, which shed 164.73 points to end the day at 17,847.24. The earnings were announced after the stock market closed.
Increased demand from manufacturers and automakers are aiding steelmakers to pass on the rising costs for iron ore and coking coal, used in blast furnaces. The cost of European hot-rolled steel coil, a benchmark product used in buildings and cars, rose 25% in the quarter.
Rising automobile demand pushed up the average price of benchmark hot-rolled steel, used to make cars and motorcycles, by 36% last quarter, according to the Steel Index.
“After a weak start in January, the demand for steel picked up and we made use of some of the higher prices to drive volumes massively and take advantage of conditions to take inventory levels to record lows,” Kohler said.
Deliveries in Europe rose to 4.13 million tonnes (mt) from 3.78 mt a year earlier and 3.47 mt in the October-December quarter.
Tata Steel Europe needs to cut costs, Kohler said in a conference call on 20 May. The unit plans to cut costs and close part of a plant in Scunthorpe in northern England, threatening about 1,500 jobs.
The European operations, which account for at least two-thirds of group output, buys all its raw material from the market as it doesn’t own any mines. In India, where it has captive sources of iron ore and coking coal, the steelmaker is in a better position.
“We enjoy an excellent position in India compared to our global peers to counter cost pressures, given the growing domestic market, a higher proportion of value-added products and a sizeable increase in capacity by the end of the financial year,” managing director H.M. Nerurkar said.
The company is in the middle of a 2.9 mt capacity expansion at its Jamshedpur plant and is expecting to commission its 6 mt per annum greenfield plant in Odisha with an investment of $7.8 billion.
Tata Steel also plans to spend about $2 billion in capital expenditure, mainly for the Jamshedpur expansion and including $600 million for its European operations, in the current fiscal year, chief financial officer Koushik Chatterjee said. He added that the expansion plans would be funded by internal cash flows and from capital raised in the previous fiscal year.
The company had a net debt of $10.4 billion as at 31 March, he said. It raised $8.8 billion in debt last fiscal year and repaid debt of $7.6 billion. It also raised Rs 3,477 crore in January, selling 57 million shares at Rs 610 apiece in a follow-on public offer as part of plans to fund expansion and repay debt. It also raised Rs 1,500 crore ($332 million) in March, in the nation’s first sale of rupee-denominated perpetual hybrid securities by a non-finance company, and followed it with another tranche worth Rs 775 crore ($174 million) in May.
Abhishek Shanker of Bloomberg contributed to this story.