Tata Steel swings to profit in Q1 on rising steel prices
Mumbai: Tata Steel Ltd swung to a profit in the June quarter, helped by rising steel prices, a production ramp-up in India and restructuring of its European steel operations.
The steel maker said it was hoping to reach an agreement on its British pension scheme settlement shortly, which could pave the way for a merger of its European business with Thyssenkrupp AG of Germany.
The company reported a net profit of Rs921.1 crore for the three months ended 30 June compared with a loss of Rs3,183 crore a year ago. That compares with the Rs1,142.1 crore consensus profit estimate of eight analysts surveyed by Bloomberg.
The fiscal first-quarter profit would have been higher but for a one-time charge of Rs614.4 crore which the company has set aside as provisions after a Supreme Court judgement imposed penalties on it for excess mining.
In the June 2016 quarter, Tata Steel had reported a loss of Rs3,296 crore from the sale of its UK long products business to Greybull Capital Llp.
Its net profit from continuing operations (after leaving out those portions of the business which had been sold) was Rs933.22 crore, a four-fold increase from a year ago.
In May, Tata Steel completed the sale of its UK specialty steel unit to Liberty House Group for £100 million. Earlier this month, the company completed the sale of two UK steel pipe mills to Liberty House, concluding the restructuring of its British operations.
India’s largest steel maker reported a 19.3% rise in revenue to Rs30,973.3 crore from a year earlier as it sold more of the metal.
The company said consolidated sales volume rose 8.6% to 5.83 million tonnes during the quarter, buoyed by a 27.9% jump in India sales volume as it increased production in the Kalinganagar plant. European sales volumes during the quarter were lower.
That said, June quarter volume dropped 16.7% from sales in the three months ended 31 March because of the slack season, plant shutdowns and the transition to the goods and services tax. The company management, however, said it had a positive outlook for Indian operations “given the thrust on infrastructure and affordable housing along with increased emphasis on buying domestic manufactured steel for government projects”.
“In the April to June quarter, steel prices didn’t go up as much as we expected and neither did raw material prices drop as much as we had thought. So, a better balance would be found this (September) quarter,” the management said.
Tata Steel’s earnings before interest, taxes, depreciation and amortization (Ebitda) margin expanded 320 basis points from a year ago to 16.1%, but narrowed from the preceding March quarter. One basis point is one-hundredth of a percentage point.
“Its European operations have been slightly better than what we thought, while India is absolutely in line. We expect a marginal upward revision in our earnings estimates for domestic operations led by higher realizations,” said Abhisar Jain, an analyst with Centrum Broking.
“Internationally, steel prices are going back to levels that can support current raw material prices,” Tata Steel’s management said in a conference call with analysts. International steel prices have shot up in the last 3-4 weeks as Chinese demand outpaced production, it said.
The steel maker’s European operations reported Ebitda of Rs1,253 crore (from continuing operations), a 40.7% increase from a year ago.
Tata Steel is trying to merge with Thyssenkrupp in the hope that the consolidation will lead to cost savings from synergy and give it some pricing power.
The main stumbling block was eliminated when the firm struck a deal with the British pension regulator to cut benefits for its £15 billion UK pension scheme. The terms envisaged Tata paying a settlement of £550 million and sponsoring a new pension plan. On Monday, it said a “regulated apportionment agreement” for the British Steel Pension Scheme will be “finalized shortly”.
Tata Steel shares rose 4.26% to Rs600 on Monday, their highest closing level since July 2011. Results were announced after the markets closed.