Tata Steel posts Rs1,036 crore profit, revenue up 22.5%3 min read . Updated: 15 May 2014, 01:31 AM IST
Revival in European demand, coupled with higher domestic prices helps steelmaker beat analyst expectations
Mumbai: Tata Steel Ltd, India’s biggest steel maker, reported a higher-than-expected profit for the quarter ended 31 March on Wednesday as it benefited from an increase in domestic prices and a rebound in European demand for the alloy.
Tata Steel earned a profit of ₹ 1,035.87 crore in the fiscal fourth quarter, compared with a loss of ₹ 6,528.51 crore a year ago, on a consolidated basis. Revenue rose 22.5% to ₹ 42,428.05 crore from ₹ 34,650.47 crore in the same period. The profit beat analysts expectations of ₹ 964 crore in profit on revenue of ₹ 39,190 crore, according to data from Thomson Reuters.
An improvement in the manufacturing sector in Europe, which became Tata Steel’s biggest market after its 2007 purchase of the UK’s Corus Group Plc. for $12.9 billion, helped sales grow at their fastest pace in three quarters.
“Europe appears to be entering a phase of solid economic growth, which is supporting a recovery in steel demand," said Karl-Ulrich Köhler, chief executive of Tata Steel in Europe.
A slowdown in the continent in the year ended March 31, 2013, forced Tata Steel and rivals in Europe to write down assets. The Mumbai-based company had taken a $1.35 billion writedown in Europe.
“Despite higher volumes in Europe, it was a disappointment, as margins went down. This reflects the company is still not able to maintain operational efficiencies and increasing volumes at the cost of margins," Giriraj Daga, an analyst with Nirmal Bang Securities Pvt. Ltd said.
Shares of Tata Steel surged to a 27-month high on Wednesday ahead of the results. The stock closed 5.91% higher to ₹ 452.15 on a day the BSE’s benchmark Sensex ended 0.24% lower to 23,815.12 points. The earnings were announced after the end of trading in Mumbai.
In India, the company benefited from higher prices. Steel companies raised prices thrice in the March quarter by a total of ₹ 1,500-3,000 per tonne for various grades of steel, boosting revenue and operating profit.
“India’s performance was really robust and a major surprise came in the form of a very high realisations. This is mainly because of higher volumes, lower employee cost and higher other income which improved the Ebitda," said Goutam Chakroborty, an analyst with brokerage Emkay Global.
Earnings before interest, tax, depreciation and amortization (Ebitda), an indicator of operating profitability, for the quarter rose 13.7% to ₹ 5,011.08 crore, against ₹ 4,368.94 crore for the quarter ended March 2013.
Growth in India’s steel consumption has been crimped by an economic downturn that has lowered demand for the alloy. In the year ended 31 March, overall steel consumption grew just 0.6% to 73.93 million tonnes, according to Steel ministry’s Joint Plant Committee.
That was countered by the improvement in Tata Steel’s operations in Europe, its market. Group steel deliveries rose 16% in the quarter to 7.62 million tons. Registrations for new cars in the European Union surged 5.4% in the last quarter, the longest streak of year-on-year gains since 2009, according to Bloomberg.
In a statement, referring to European operations, Tata Steel said a revamped blast furnace in the UK, together with improved conditions in Europe as a whole, had led to an increase in sales by volume.
“Financial performance consequently improved, despite average market conditions being worse than in the previous year. Sales volumes also grew, as did the quality profile. The volume of new products sold rose by more than 75% in FY’14 compared to the previous year and the company launched 30 new products, as promised," it said.
Tata Steel’s net debt at the end of the March quarter was 67,326 crore; it had cash and cash equivalents of ₹ 11,373 crore.
Reuters and Bloomberg contributed to this story.