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Tata Steel Ltd saw a turnaround in the September quarter with a consolidated net profit of Rs 917 crore compared with a loss of Rs 364 crore in the year-ago period. The Indian market chipped in with higher realisations as well as growth in sales volume. Tata Steel’s ability to source all its iron ore and a large part of coking coal from captive mines gives the company an edge on margins.
The Indian and the South-East Asian businesses reported an improvement in operating profit margins. The biggest positive in the results was the continued pick-up in Tata Steel Europe, which accounts for over half of the consolidated revenues. It had turned around only in June.
It was higher sales of flat steel products, including value-added products, to the automobile sector that helped Tata Steel India’s growth. The company has been increasing its portfolio of value-added products, which are largely imported. The 6-million-tonne Kalinganagar plant in Odisha, which is expected to be commissioned by the end of 2014-15, will boost the production of high-grade flat steel products.
With the blast furnace at Port Talbot, UK, fully functional, a ramp-up in production (up 16 per cent year-on-year) in Europe helped reduce fixed cost, while stable raw material prices aided margins. The company reported increased sales of value-added products — up 13 per cent during the first half of this fiscal — which offer higher margins.
Demand up
Looking ahead, demand in the Indian market is expected to be better in the seasonally stronger second half of the fiscal. Profit margins in the domestic business may benefit from a better product mix. As regards Europe, there are signs of improvement, and growth can be seen across key demand segments such as auto, machinery and construction. However, given the global excess steel supply position, prices are likely to remain under pressure.
While demand outlook for the construction sector in South-East Asia is positive, China, too, is looking at increasing its share of this market, posing a competitive threat.
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