Tata Steel swings to profit on strong demand

Tata Steel swings to profit on strong demand

Mumbai: India’s largest steel maker Tata Steel Ltd beat analyst expectations by posting a consolidated net profit of Rs2,434 crore in the fourth quarter of fiscal 2010 on strong demand from user industries such as automobiles and construction.

The price hikes pushed through by Corus Group Plc, its European unit, also helped the company post a strong profit.

Tata Steel, however, ended the year in the red, with a group loss of Rs2,120 crore for the entire fiscal compared with a profit of Rs4,849 crore in the previous fiscal.

Steel makers including Tata raised prices in the last quarter anticipating raw material costs would increase from April as iron ore and coking coal suppliers decided to switch from annual pricing to quarterly supply contracts. Corus increased prices of long products, used for construction, in January, and hot- and cold-rolled and hot-dipped galvanized products in March.

“This may be one of the best quarters for the company in more than a year," said Niraj Shah, an analyst at Fortune Equity Brokers Ltd in Mumbai. “Raw material prices had gone up in April but the company had raised prices before that."

Tata Steel’s annual results were cushioned somewhat by income of Rs1,185 crore from sales of shares in Tata group companies such as Tata Power Ltd, Tata Motors Ltd and Tata Consultancy Services Ltd.

“We will continue to review our portfolio for divestment," said chief financial officer Kaushik Chatterjee, adding that the company is taking steps to address its debts as well.

The steel maker has paid down some of the debt it took on through special purpose vehicles to fund the 2007 acquisition of Corus.

Chatterjee said in a press conference to announce the results that the company had reduced its gross debt from $13.3 billion in March 2009 to $11.8 billion in fiscal 2010, as it used its cash reserves to prepay debt.

The recent economic troubles in Europe, the main market for steel manufactured by Corus, could impact Tata Steel’s performance in the year ahead.

“Europe has exited recession but recovery is still weak. We are confident of the first half of 2010-11 but we are not confident about the second half. We will continue to focus on working capital and liquidity management," said Kirby Adams, managing director and chief executive officer of Tata Steel Europe.

Adams said European steel consumption is expected to recover and rise between 15% and 20% to reach 140 million tonnes (mt) in calendar 2010.

Adams added that capacity utilization at the Corus plants would be about 85% in the first half of the current fiscal, but cautioned that “raw material contracts have been imposed on us causing huge disruptions".

“Iron ore prices this year will be the highest in history," he warned.

Steel consumption in India for fiscal 2010 grew 14% to 63 mt for the year and is likely to increase at the same level to 72 mt, said managing director H.M. Nerurkar.

Tata Steel shares rose 1.6% to Rs484.45 at close of trading. The benchmark Sensex rose 2.3%. The results were announced after the market closed.

Bloomberg and Reuters contributed to this story.