News Analysis

Tata Steel: Poor volumes impact Q4 performance

Satya Sontanam BL Research Bureau | Updated on June 30, 2020 Published on June 30, 2020

Tata Steel reported a net loss of ₹1,615 crore in the March quarter against the net profit of ₹2,295 crore logged in the same period last year on the back of poor volumes, weak realisations and ₹3,141-crore impairment charges. Sales were down 20 per cent at ₹32,867 crore (₹41,186 crore, a year ago).

Lower sales volumes were on the back of weak demand from key steel consuming sectors such as automotive and construction .

Margins intact

In the quarter ending March, Tata Steel India sold 4.03 million tonnes (mt), lower by about 15 per cent compared to the same period last year. This coupled with weak realisations led to drop in revenues of the company by about 22 per cent to ₹19,493 crore. The average realisation per tonne of steel in the March quarter was ₹48,369 as against ₹52,756, a year ago.

Tata Steel India reported operating profit of ₹4,568 crore, down 21 per cent from a year ago.

However, the profitability margins of the Indian operations remained intact at about 26 per cent. This is due to lower consumption cost of coal — a key raw material, and improvement in the product mix. For instance, the company increased the share of high margin downstream products in the total sales volumes from about 6 per cent in Q4 FY19 to 8 per cent in Q4 FY20.

Further, notable improvement was seen in the performance of subsidiaries of the company — Bhushan Steel and the long products business. The latter, earlier referred to as Tata Sponge, now includes Usha Martin business acquired in April 2019. The operating margins of these companies improved to 18 per cent (14 per cent in Q4 FY19) and 13 per cent (11 per cent in Q4 FY19) respectively in the quarter ended March. This is on the back of improvement in key performance indicators of the company such as fuel and power consumption rates.

European operations

Sales from European operations declined by 7 per cent YoY to 2.39 m in Q4 FY20 primarily due to overall weakness in economic activities. Revenue from operations decreased to ₹13,588 crore in the March quarter primarily due to sharp decline in European steel prices and lower deliveries, resulting in operating profit deterioration to ₹65 crore, from about ₹1,696 crore a year ago.

A silver lining here is that the operating profit turned positive in the quarter from loss of about ₹950 crore in the December quarter. This is on the back of lower raw material prices.

During the quarter, the assets of European operations too were impaired and significantly contributed to the exceptional items charged by the group to an extent of ₹3,406 crore.

Further, the directors of European business assessed that the UK operations are expected to be adversely impacted with respect to its ability to continue as a going concern and meet its liquidity requirements.

In response to the pandemic, the off-shore business continues to implement measures aimed at conserving cash, including but not limited to deferral of capital expenditures, reduction in administrative expenses, use of non-recourse securitisation programmes and seeking government backed funding.

Net debt

As on the end of the quarter, net debt of the company has not been changed much despite adverse impact of foreign exchange on the company’s external borrowings. As on March, the net debt stood at ₹1,04,779 crore as against ₹1,04,628 crore as on December 2019. This is largely because, the group increased its cash and cash equivalents to an extent of ₹6,310 crores to ensure ample liquidity in current environment.

Published on June 30, 2020
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