What did Bhushan Steel bring home for Tata Steel?

Satya Sontanam BL Research Bureau | Updated on August 15, 2018 Published on August 15, 2018

Tata Steel’s consolidated first quarter results, released on Monday, included the numbers of Bhushan Steel, which was acquired earlier this year.

Despite being debt-ridden, Bhushan Steel’s operations were stable, and a favourable steel market aided the company’s operating profits. While it added additional revenue to the group, and has the potential to move the margins of Tata Steel higher, it raised debt levels in the balance-sheet considerably.

Bhushan Steel contributed nearly ₹2,100 crore to Tata Steel’s topline, and ₹66 crore to the parent company’s operating profits.

Thus, it accounted for about six per cent of Tata Steel’s total revenue (₹37,833 crore) and one per cent of the operating profits (₹6,559 crore).

As Bhushan Steel’s acquisition happened mid-way through the first quarter (on May 18, 2018), only half the period’s results were consolidated with Tata Steel’s earnings.

Also, there were a few one-time, accounting write-offs. These are expected to get normalised from the second quarter.

Bhushan Steel appears to have delivered the goods during the quarter, recording revenue and operating profits of about ₹4,000 crore and ₹820 crore respectively, with sale volumes of 0.85 million tonnes. This has resulted in an EBITDA (Earnings before interest, tax, depreciation and amortisation) per tonne of about ₹9,650.

The EBITDA per tonne for Tata Steel’s European operations was at about ₹6,800 per tonne. At the current levels, it is higher than the EBITDA/tonne of many competitors in the domestic market.

This is possible due to the company’s presence in the value-added products segment. It caters mainly to the auto industry and consumer-durable makers through facilities spread across Odisha, Maharashtra and Uttar Pradesh.

Also, Tata Steel is expected to supply iron ore from its captive mines to Bhushan Steel; this will further reduce the cost of production.

Burden on balance sheet

Tata Steel’s debt has risen by about ₹16,500 crore on account of the acquisition.

Also, cash and cash-equivalents has declined to ₹13,086 crore by the end of the first quarter from ₹22,932 crore at the end of the previous quarter.

Published on August 15, 2018
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