Tata Steel earnings. Higher volumes, better realisations boost Tata Steel Q4 earnings

BL Research Bureau

The Q4FY21 results of Tata Steel added cheer to the already buoyant share price of the company. The stock went up by 3 per cent on May 6, Thursday, to ₹1,103 following its results announcement post-market close on May 5.

The company reported healthy earnings for the quarter ended March 2021. The consolidated net profit was at ₹7,162 crore, as against A loss of ₹1,615 crore during the same period last year. The consolidated operating margins too skyrocketed to 28 per cent during the fourth quarter of FY21, as against 14 per cent a year-ago. The standalone performance has been impressive, with the operating margins at 43 per cent against 37 per cent in the third quarter and 26 per cent a year ago. While the year-ago period was impacted due to lockdown in Q4 FY20 and y-o-y improvement may partially be overstated due to this, it needs to be noted that performance in Q4 FY21 is still decent with the highest ever quarterly EBITDA of ₹12,295 crores from standalone operations.

Another positive aspect of the results is the focus on deleveraging by the company. As a result, the net debt has come down by 13 per cent from ₹86,170 crore in December 2020 to ₹75,389 crore by March 2021. The company had already surpassed its annual deleveraging target of $1 billion in the third quarter itself.

Higher realisations

During the seasonally strong fourth quarter of FY21, Tata Steel reported consolidated revenue of ₹49,977 crore, a growth of 38 per cent y-o-y and 19.2 per cent q-o-q.

This was supported by higher sales and better realisations on the back of higher steel prices. Q4 FY21 is supposedly the first quarter, which fully benefitted from the rise in steel prices since the second half of FY20. The third-quarter realisations only partially reflected the hike in steel prices due to the lag effect.

During the quarter, the group’s sales volumes went up to 7.83 million tonne (up 11 per cent y-o-y and 5.7 per cent q-o-q). The steel prices have been increasing month-on-month since mid-2020. To give a perspective, the Chinese steel prices – a harbinger for the movement of international steel prices - are around $ 721 per tonne in April 2021, up 79 per cent since a year ago.

Tata Steel standalone operations generated 42 per cent of the company’s consolidated revenue and grew by almost 50 per cent (y-o-y).

The average realisations of Tata Steel standalone improved to ₹45,402 per tonne from ₹35,263 per tonne a year ago. Buoyed by healthy realisations, the operating profit per tonne from the Indian operations in Q4 FY21, more than doubled to ₹27,828 per tonne compared to Q4FY20.

Also, focus on volume mix helped the company improve profitability during the said period. For instance, automotive sales from Indian operations (including Tata Steel BSL and Tata Steel Long Products) increased to 0.78 million tonne during Q4 FY21 from 0.50 million tonne a year back in overall sales volumes.

In the case of European operations, the demand picked up and thus the sales in that region. As a result, this segment reported an operating profit of ₹1,194 crore during the March 2020 quarter against a meagre profit of ₹65 crore in Q4 FY20.

Going ahead

The company believes that the re-imposition of mobility restrictions amidst the resurgence of Covid-19 infection, and policy support tapering, may impact domestic demand recovery and optimistic about the attractive opportunities from international markets.

Further, the future cash flows are expected to be focused on deleveraging first and only after that towards the growth capex.

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