Tata Steel profits below expectation

Tata Steel reported a consolidated profit of Rs 1,018 crore for the second quarter ended September 30, 2017 compared to a loss of Rs 49.4 crore in the same quarter a year ago. The profit was, however, much lower than a consensus estimate of analysts who expected the profits of Rs 1698 crore for the quarter. Earlier in the day, the stock closed Rs 718.8, down Rs Rs 7.45 or 1.03 percent. The stock had touched 52-week high of Rs 734.9.

The company reported consolidated revenue of Rs 32,464 crore compared with Rs 32,031 crore in the year ago period. At the operational level, the earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 53.7 percent to Rs 4,720.5 crore, while the operating margin came in at 14.54 percent against 11.85 percent.

“Tata Steel witnessed strong volume growth during the quarter as the smooth ramp up of our Kalinganagar Steel plant coupled with our strong marketing franchise enabled us to expand our customer universe and increase our market share. This is against the backdrop of subdued steel demand during the quarter with slow construction activity, weak rural demand and poor consumer sentiment,” T V Narendran, Managing Director, said in a statement to the exchanges.

In the backdrop of slack economic growth, deliveries for India operations grew 17 per cent year-on-year (YoY) and 12 per cent quarter-on-quarter to 3.08 million tonnes for the period under consideration.

Strong growth was seen in the automotive sector, which grew 34% YoY as the company developed new grades and vehicle models.

One of the biggest worry for the past several years for Tata Steel was the overhang of the debt it took nearly a decade ago to buy the operations of the UK-based steel maker Corus. During the quarter, the company’s gross debt increased by Rs 2,447 crore and stood at Rs 90,259 crore, mainly due to working capital lines and foreign exchange impact. The company in a statement said its liquidity position remained robust with approximately Rs 19,800 crore in cash and cash equivalents and undrawn bank lines.

Mr. Koushik Chatterjee, group executive director, Tata steel said: "Globally, there was a recovery in the commodity cycle with cuts in Chinese Steel Capacities and stronger demand resulting in improving utilisation levels of mills in China to more than 85%. This coupled with recent uptick in raw material prices has lifted the steel prices across regions."

Going forward, a lot hinges on global steel prices and China's production, which is yet to operate in full capacity. Earlier, a Bloomberg report had suggested that a growing fear of inflation is leading to hedge funds outlining a bearish prospects for commodities in the near future.