The Hindu Business Line : Corus buy boosts Tata Steel Q1 consolidated profits 5-fold

The entry of the Anglo-Dutch steel major Corus into Tata Steel’s fold (the former became a subsidiary from April 2, 2007) has sharply boosted the latter’s consolidated turnover and net profits for the first quarter of the current fiscal.

The subsidiaries contributed a little less than half to the consolidated turnover and hardly anything at all to Tata Steel’s profits in fiscal 2006-07.

But the consolidated results filed by the company with the National Stock Exchange (NSE) show that they are now responsible for a 6.4 times improvement in turnover (from Rs 4,198 crore to Rs 31,155 crore) and a 5.2 times growth in adjusted net profits (to Rs 6,360 crore from Rs 1,222 crore) in the first quarter of the current fiscal.

Corus’ contribution to Tata Steel’s consolidated performance also becomes clear from the fact that in the quarter ending June 2006, it recorded a turnover of £2,405 million from its continuing businesses which would have translated into Rs 20,298 crore at the the exchange rate of Rs 84.4 to a pound sterling as on June 2006.

The consolidated net profits for the first quarter has been aided by a gain of Rs 4,121 crore. The company has attributed this to savings in pension liabilities for its subsidiary Corus, consequent to an improvement in yields on bonds held by the Corus’ various pension funds as investments to meet such obligations.

Significant Impact

If pension fund gains are excluded, the management takeover does not appear to have had significant impact on profit performance. The Corus group had reported a June quarter profit after tax of £82 million in 2006 which at the then prevailing exchange rate, would have translated into a net profit of Rs 1,090 crore approximately. The reported net profit of Rs 6,360 crore inclusive of pension fund related gains, has to be seen in this context.

Interest costs on a consolidated basis have gone up nearly ten fold from Rs 80 crore (standalone basis) to Rs 892 crore (consolidated) during this period.

But the company has clearly gained from the appreciation of the rupee against the principal currencies of the West. In the statement filed by the company with the NSE, it acknowledged the contribution of foreign exchange gains to the tune of Rs 538 crore in the current quarter.

Rights issues

The company is proposing, subject to market conditions and other considerations, an offer to shareholders on a rights basis. It also said that the offering could be in the nature of an issue of equity shares or cumulative convertible preference shares.

A draft letter of offer has already been filed with SEBI and is awaiting regulatory clearance.