The recent recovery in industrial growth and in the real estate sector augurs well for Indian steel makers and the resultant rise in demand is already evident. India and China are two markets where steel units are operating at quite high levels of capacity utilization; 86% for China and 80% for India, compared with the world average of 64%.
India’s relative strength is seen in Tata Steel Ltd’s stand-alone performance (domestic operations), with steel deliveries up by 19.7% year-on-year in the September quarter. But that was negated by a 35.5% drop in price realizations. As a result, steel revenues fell by 12%. Total operating income fell by 16.5% during the September quarter to Rs5,692 crore.
Realizations fell by 3% on a quarter-on-quarter basis and were lower than analysts’ expectations. Tata Steel’s shares fell by almost 7% on Tuesday, making the company one of the top five losers among Nifty stocks. Lower price realizations had affected its performance in the June quarter too, and the high base effect is likely to affect its revenue growth in the second half as well.
Tata Steel has also been affected by a sharp drop in steel exports, which dropped by at least 50% to Rs515 crore. The company has, however, managed its operating costs well during the quarter. They rose by only 3.8% despite a sharp jump in production.
Operating profit, however, declined by 43% thanks to the sharp drop in realizations. Tata Steel’s net profit declined more sharply, falling by 49.5% to Rs902 crore. That’s perhaps why its share price fell so sharply.
These are for non-operating reasons, as its other income fell by 68% to Rs76 crore and its interest expenses went up by 54% to Rs392 crore. The company said it has taken incremental debt of Rs5,600 crore on its books in the first half of the year, leading to higher interest costs. All eyes will now be on its international operations, particularly Corus, and the consolidated results next month would decide the stock’s future direction.