Profit growth despite lower steel prices; focus on branding

Our Bureau

Mumbai, July 21

Tata Steel Ltd (TSL) has announced a three per cent increase in its net profit for the first quarter ended June 30, 2006 at Rs 953.41 crore against Rs 924.11 crore in the corresponding period last year.

The steel major's results surprised the market, which had been expecting a fall in profits.

Yet share prices of Tata Steel ended Rs 3.55 down at Rs 483.55 in line with the overall weak market sentiment.

"Steel prices this June have been down by Rs 2,500 a tonne as compared to the same period last year. Every single steel company would have reported a drop in profit margins but Tata Steel has been able to report higher profits because of its relentless efforts on cost efficiencies and product mix," Mr B. Muthuraman, Managing Director, Tata Steel, said.

"Better volumes, improved marketing and lower cost helped us," he said.

Net sales for the quarter were higher at Rs 3,915.85 crore (Rs 3,557.06 crore).

Other income amounted to Rs 77.93 crore (Rs 30.33 crore). Other income accounts for the investments in mutual funds and trading gains, Mr Kaushik Chatterjee, Vice-President - Finance, Tata Steel, said.

Mr Muthuraman also said that the company has been focussing on bringing down raw material and energy consumption in order to contain costs. At the same time, the company continued its thrust on upgrading its products. "Branding has been our thrust area," Mr Muthuraman said.

"In due course of time, 100 per cent of our steel sold through distributors and retail outlets will be branded," he said.

Operating profit stood at Rs 1,581.30 crore (Rs 1,588.21 crore).

Tata Steel reported a 3.7 per cent increase in its consolidated first net profit at Rs 1,013.94 crore (Rs 977.20 crore).

The company's steel production rose from 9,48,926 tonnes to 1,108,514 tonnes, logging a 16.8 per cent increase. Steel sales stood at 11,15,066 tonnes against 8,75,498 tonnes.

The company's four divisions tube, wire, ferro alloys and bearing also did well during the quarter.

Earnings per share (EPS) has risen from Rs 16.70 to Rs 17.23 per share.

Tat Steel's production would be higher by 5,00,000 tonnes during the current fiscal.

The company would also focus on integration of Millennium Steel it had acquired recently.

The company is keeping its eye open for possible acquisition opportunities, officials said.

Steel Prices

According to Mr Muthuraman, steel prices would be stable. "This year from January to May 2006, demand was seven per cent higher. The demand expectation for 2006 is in the region of 7-7.5 per cent globally. Therefore, prices would be stable," he said.

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(This article was published in the Business Line print edition dated July 22, 2006)
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