Tata Steel profit rises 37% on one-time gain; recovery elusive - Livemint

Consolidated net sales came in at Rs.35,503.25 crore in the July to September quarter, down 2.36% from the same time a year ago. Photo: Bloomberg

Mumbai: Tata Steel Ltd reported a consolidated net profit of Rs.1,254.33 crore in the second quarter of 2014-15 on Wednesday, up 36.82% from the same quarter a year ago on a one-time gain, as the company continued its strategy of selling off assets amid weak steel demand.

The net profit included a one-time gain of Rs.1,145 crore on account of sale of the company’s land in Borivali in Mumbai, which was concluded during the quarter under review, the company said.

“The group turnover declined marginally mainly due to lower realizations in Europe and earnings before interest tax depreciation and amortization (ebitda) and ebitda margins remained stable despite lower international steel prices and a seasonal weak quarter in India and Europe,” Koushik Chatterjee , group executive director (finance and corporate) of Tata Steel, said at a media briefing.

The company completed the refinancing of its entire ex-India debt of about $7 billion on better terms and pricing that improved the liquidity position and debt maturity profile, Chatterjee added.

Consolidated net sales were Rs.35,503.25 crore in the quarter, down 2.36% from the same time a year ago. Analysts expected Tata Steel’s second quarter consolidated net profit at Rs.676.3 crore on sales of Rs.36,418 crore, a Bloomberg poll showed.

Two analysts who participated in a Tata Steel conference call after the results were declared said the company’s provision for recovery of doubtful advances in South-East Asia, was a cause of concern.

“Tata Steel’s results looked bleak on the face of it, primarily on back of provisions for doubtful advances classified under South-East Asian operations,” said Ritesh Shah, materials analyst at Espirito Santo Securities India Pvt. Ltd. “Adjusted for which (Rs.240 crore), operational numbers look good for both India and Europe.”

Tata Steel is the largest Indian steel maker with an installed capacity of nearly 30 million tonnes spanning Asia and Europe and has a new plant coming up in Odisha even as it truncates European operations owing to economic weakness.

In Europe, where the majority of the company’s manufacturing capacity lies, talks are on with trade unions and a due diligence is being conducted by the Geneva-based Klesch Group for a sale of the company’s long-products operations.

Growth in the European Union sector output is decelerating as economic recovery remains modest and forward indicators suggest that imminent improvements are not to be expected, said Karl-Ulrich Kohler , managing director and chief executive officer of Tata Steel in Europe.

However, the purchasing managers’ index for construction has been below 50 for five months, indicating that the sector was contracting and it will turn to 50 now in September, which indicates a potential shift to the growth area, Kohler said.

The executives present at the briefing said the company has decided to focus on the strip products (as against the long products) as a strategic move and did not say if the latest move to hive off the long products will be the last of the sell-offs.

“Portfolio management is a general task that is ongoing. So, there is no such time where you indicate that this is it,” said Kohler. “However, we have currently no concrete plans in that area (of more selling of assets).”

Europe, like India, has been hit by the massive Chinese imports that are preventing local manufacturers to take advantage of the slightest recovery in demand, the executives said.

“As you know, the steel demand has been disappointingly flat over the last six months with the fall in global commodity prices, the clampdown on mining and the modest growth in industrial production,” said T.V. Narendran , managing director, India and South-East Asia. “We hope that the stable political climate will trigger reforms and demand will recover in FY16, if not the second half of this year.”

“Infrastructure and construction sector should improve with the monsoon behind us and we are hoping that the auto sector will have better growth in the second half than it did in the first half, particularly the passenger and commercial segments.”

Narendran said the company’s Kalinganagar plant was on course for its scheduled commissioning by the end of March and social infrastructure was now being built, though the linkage with the iron mine for the captive supply has continued to remain a problem.

The company has evolved a model of procuring iron ore from NMDC Ltd and also importing it. Since it started imports, it has bought 2.2 mt of the material from overseas.

“Restart of mining operations domestically along with steel pricing environment remain key variables for the stock,” Espirito Santo’s Shah said.

Shares of Tata Steel closed at Rs.468.30 on the BSE on Wednesday, down 2.38% from its previous close, while the Sensex closed at 28,008.90 points, up 0.35%.

Ashwin Ramarathinam contributed to this story.