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Business News/ Industry / Manufacturing/  Tata Steel shares fall 5% as Q4 results disappoints
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Tata Steel shares fall 5% as Q4 results disappoints

Liquidity and credit continue to be a challenge for our customers, said T.V. Narendran, MD, India and South East Asia of Tata Steel

Tata Steel has seen a small rise in demand from the automobiles sector, but it remains worried about small and medium enterprises that consumes 45% of steel, T.V. Narendran, MD, India and South East Asia of Tata Steel added. Photo: AFP Premium
Tata Steel has seen a small rise in demand from the automobiles sector, but it remains worried about small and medium enterprises that consumes 45% of steel, T.V. Narendran, MD, India and South East Asia of Tata Steel added. Photo: AFP

Mumbai: India’s steel makers are suffering as many of their customers, especially in the construction industry, face a cash crunch, a top Tata Steel Ltd executive said.

“Liquidity and credit continue to be a challenge for our customers," T.V. Narendran, managing director, India and South East Asia of Tata Steel said on the sidelines of the company’s earnings conference on Wednesday. This is seen “typically in the construction industry that directly and indirectly consumes about 60% of steel."

India’s construction sector that could be buying about 48 million tonnes of steel annually as per industry estimates, is in a slump. Developers are launching few new projects, as unsold homes pile up in cities. Infrastructure development has not picked up either, even though bidding activity has picked up.

Tata Steel, which posted a consolidated net loss of 3,926 crore in 2014-15 against a net profit of 3,595 crore in the previous year, built up stocks in March as it did not want to push steel into the market at the risk of poor recoveries.

On Thursday, Tata Steel shares closed 5.11% lower on the BSE, while benchmark Sensex closed 0.10% lower at 27,809.35 points.

Imports from China and South Korea too kept steel prices and realizations in check.

Tata Steel has seen a small rise in demand from the automobiles sector, but it remains worried about small and medium enterprises (SME) that consumes 45% of steel, Narendran added.

“If you talk to the economists, they say the credit offtake has not changed much... That is a concern," he said. “Because that is what is going to ultimately translate into demand and supply."

While credit demand has been weak across the board due to low investment demand, SMEs in particular, have seen hardly any growth in loans given to them.

Loans to medium-sized firms saw a meagre 0.3% growth in 2014-15, according to sectoral credit data released by the Reserve Bank of India (RBI) earlier this month.

In order to deal with the slack phase, Tata Steel is raising its focus on branded steel, retail and rural solutions, and is planning to cater to a new category—the defence segment.

The Indian economy is expected to grow at close to 7.5% during the current financial year, according to the World Bank. However, indicators like the index for industrial production point to weak conditions on the ground, particularly for the so-called eight core sectors. Core sector output grew at 0.1% in March—the lowest in 17 months. The core sector index includes the steel sector.

Last week, Tata Steel wrote off its long-products business in the UK, citing poor demand for steel used in construction and engineering industries. The company reported a one-time asset impairment charge of 4,811 crore related to this business.

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Published: 21 May 2015, 10:59 AM IST
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