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Tata Steel: Imports dent profits
Hurt by the influx of steel imports and weak domestic steel prices, Tata Steel’s revenue fell 17 per cent (year-on-year) to ₹30,300 crore in the June 2015 quarter. Operating profit too contracted 35 per cent to ₹2,774 crore. This was the fourth consecutive quarter of declining revenue and operating profit for the company.
The 57 per cent jump in India’s steel imports and the resultant pressure on domestic steel prices (down 21 per cent) impacted the company’s Indian operations. At its European operations, a stronger pound and higher imports played spoilsport.
Consequently, Tata Steel’s operational profitability (EBITDA) per tonne of steel sold worsened significantly. In India, the EBITDA per tonne contracted 27 per cent to ₹11,266 in the June quarter. In Europe, in a sharp reversal from the past of several quarters of improving EBITDA per tonne, the metric slumped 46 per cent to ₹1,672 this quarter.
The company though, reported 126 per cent growth in net profit to ₹763 crore. Lower depreciation and interest expense and profit on sale of assets boosted the bottomline. A gradual pick- up in demand from auto and infrastructure companies should aid growth in future.
Sun Pharma: Muted show
The 4 per cent year-on-year fall in Sun Pharma’s operating profit in the June quarter was due to three factors. First, the company is pursuing remediation efforts at its Halol plant, which came under the US drug regulator’s scanner in September 2014. Besides one-time remediation expenses, fall in production of select high-margin products, such as anti-cancer drug Doxil, at the plant also impacted profits. Second, as part of the integration of Ranbaxy’s business with itself, Sun is rationalising operations in key emerging markets by exiting low-margin businesses.
Third, a 37 per cent increase in research and development expenses also had an impact. This was largely due to development of innovative molecule MK-3222 in-licensed from global giant MSD; the drug targets plaque psoriasis.
However, Sun’s muted performance was largely on expected lines, given the complexities involved in the integration of Ranbaxy. In July, the company had upped its synergy guidance from the Ranbaxy acquisition by $50 million to $300 million.
Sun’s good track record of turning around distressed companies, such as Taro, raises hopes of higher-than-expected synergies in the long term.
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