Consolidated results for the June quarter at India’s largest private steel firm, Tata Steel Ltd, were far weaker than analysts’ estimates, leading to a mini sell-off in the company’s shares in the last half an hour of trading on Thursday. The company reported a consolidated net loss of Rs2,209 crore, against an IBES (Institutional Brokers Estimate System) estimate of a loss of Rs800 crore, points out an analyst. Tata Steel’s shares fell by at least 5% on account of the weak results.
As one analyst with an institutional brokerage puts it, the results of the firm’s European subsidiary Corus Group Plc. are a disaster. The European arm reported an operating loss of $387 million (Rs1,896.3 crore) on revenue of $3.18 billion. The losses are 30% higher compared with the March quarter. On a year-on-year basis, Corus’ sales have nearly halved and the sharp drop in capacity utilization has resulted in the high losses. According to another metals analyst, the company has disappointed on the profitability front, with both raw material cost and other expenditure being higher than estimates. Even interest cost and depreciation charges have increased sharply quarter-on-quarter.
But despite the very negative results, the company’s shares may not correct by much going ahead, given the markets’ enthusiasm about the possibility of a pick-up in the steel cycle. While there have been few price increases already, some analysts expect there will be further increases.
Nomura’s European metals team expects benchmark European steel prices to rise to $650-700 per tonne in the next calendar year, compared with current levels of around $600 per tonne, the brokerage stated in a report dated 18 August. The recent increases in prices have been possible partly because of the near completion of the inventory de-stocking process that began towards the end of last year, the report said.
Tata Steel had mentioned last month while announcing the results of its Indian operations that it expects to gradually increase production levels at Corus. This, coupled with the possibility of higher prices, has led to much demand for the company’s shares. The shares have nearly trebled compared with the lows in early March, easily beating the returns of the broad market.
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