News Analysis

‘Steel’ing the show on home turf, but tepid performance abroad

Satya Sontanam BL Research Bureau | Updated on April 26, 2019 Published on April 26, 2019

Indian operations contributed 63 per cent to the consolidated sales of 7.52 million tonnes in the quarter ending March 31, 2019   -  Arunangsu Roy Chowdhury

The stock price of Tata Steel surged 7.19 per cent on Friday due to healthy earnings in the quarter ended March 2019. The consolidated steel production and deliveries grew above estimates by 27 per cent and 29 per cent year-on-year respectively.

The consolidated operating profit increased 33 per cent to ₹7,814 crore, on the back of higher sales and good realisations.

It is to be noted that the earnings of the company’s South-East Asian operations were not consolidated in the profit and loss account but shown as a discontinued operations as it recently entered into an agreement to pare off those low-profitable operations.

Together, higher

Indian operations contributed 63 per cent to the consolidated sales of 7.52 million tonnes (mt) in the quarter ending March 31, 2019. In the said quarter, Tata Steel India’s collective production and sales grew 48 per cent and 55 per cent to 4.48 mt and 4.72 mt respectively.

Production increased on account of acquisition of Bhushan Steel (Tata Steel BSL) and ramping-up of capacities at both Kalinganagar and Tata Steel BSL. Increase in sales was driven by higher demand from infrastructure sector. As a result of higher sales volume, revenues grew by 51 per cent y-o-y in the fourth quarter of FY19.

However, there was pressure on operating profits in the March quarter of 2019. Tata Steel India’s standalone EBITDA (Earnings before interest, tax, depreciation and amortisation) per tonne fell by about 8 per cent y-o-y to ₹13,619. Bhushan Steel, which was acquired by Tata Steel in May 2018, also felt the pinch, as EBITDA per tonne fell to ₹6,911 per tonne from its high of ₹11,000.

Weak operating profits could be attributed to marginally lower realisations and higher costs of coking coal. Also, because of the weaker domestic demand in the initial part of the quarter, the company increased its exposure to overseas market where realisations are weaker than in India. Further, high-margin automotive sales has declined 14 per cent from a year-ago period due to slack demand from the automotive industry.

Flat growth in Europe

While the sales volume in the European business grew by a marginal 0.7 per cent to 2.57 mt, the operating profit increased by 5.18 per cent to about ₹1,200 crore (excluding one-off gain) on the back of improved realisations and savings on maintenance costs.

With regards to Tata Steel Europe’s joint venture with thyssenkrupp AG, the European commission issued a statement of objection for which both the companies submitted a package of proposed remedies. The deal is expected to take quite some time before it sees the light of the day.

Published on April 26, 2019
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