Tata Steel Q1 Loss At Rs 2,833 Crore; EBITDA Grows 65%

Tata steel posted a loss of Rs 2,833 crore during the quarter ended June 30, 2016 mainly on account of the loss from discontinued operations of Rs 3,296 crores recognised with divestment of its long product unit in the UK, which was completed during the quarter. The company recorded a turnover of Rs 26,406 crore during the quarter with an operational profit (EBITDA) of Rs 3,270 crores, which was up 65 per cent compared to immediate preceding quarter (Q4 in financial year 2016) and 21 per cent higher than the year-ago comparable quarter.

The increase in operational profit was mainly on due to improved operating performance across India, Europe and South East Asia, the company said in a statement. This operation margin of 12.4 per cent expanded by 520 bps as compared to 7.2 per cent in the preceding quarter and 280 bps compared to 9.6 per cent in the corresponding previous quarter. The company’s gross debt int he quarter was Rs. 85,475 crore as compared to Rs 81,975 crore as of the last quarter financial year 2016. Its net debt of Rs. 75,259 crore was higher by Rs. 4,171 crores over the preceding quarter and the liquidity position with cash and cash equivalents including drawn and undrawn bank lines were Rs. 12,746 crore.

In India, deliveries of 2.14mt were in line with the March quarter as its automotive sales grew by 19 per cent. The branded products for the company in India now account for 34 per cent of total deliveries. The EBITDA in the Indian business was Rs. 2,236 crore, representing a margin of 22 per cent and it expanded by 250 bps compared to the preceding quarter due to higher realisations and focus on value added products.

The company said that its new plant at Kalinganagar started commercial production from June 1, 2016.

Other Indian subsidiaries reported around Rs. 124 crores of EBITDA during the quarter. The company said that its realisations in the current (second) quarter are expected to be affected by lower demand from large steel consuming sectors such as construction and capital goods as well as seasonal sluggishness due to monsoons. “Demand is expected to pick up post-monsoon and the festive season on the back of increase in disposable income due to the Pay Commission award, good harvest and easier liquidity and supply side pressures from domestic steel companies likely to cap realisations and keep industry mill utilisation levels under check,” it added. Also, since the EU economy is expected to continue to grow gradually though UK’s stronger growth may slow down following the referendum result. Supply pressures from imports are expected to continue and the weaker pound is expected to improve UK’s short term competitive position on exports, however it will add cost pressure due to higher cost of raw materials purchased in US dollars, it said.

“Seasonal headwinds and a slowdown in a large steel consuming sector like real estate affected steel demand in the quarter. While the regulatory changes have helped stem the flood of imports, domestic supply has increased and added to the competitive pressure,” said T V Narendran, managing director of Tata Steel (India and South East Asia).

“Tata Steel deliveries were stable this quarter and we successfully maintained our market share in our chosen high-end segments. Our Auto business grew by 19 per cent over the last year and Branded Products now contribute around 34 per cent of overall sales. Stronger realisations and focus on value added products helped the business expand margins by 310 basis points and deliver an EBITDA of Rs. 2,236 crores. Tata Steel Kalinganagar commenced commercial production during the quarter and the plant is ramping up well both in terms of output and quality. Despite continued imports from China, the South East Asia operations have shown a significant improvement in the business due to the focus on downstream products and solutions, exports and effective management of spreads,” he added.