The Hindu Business Line : Tata Steel Q2 net profit halves on fall in product prices

(From left) Mr Kirby Adams, Managing Director and Chief Executive Officer, Tata Steel Europe Ltd; Mr H.M. Nerurkar, Managing Director, Tata Steel Ltd; and Mr. Koushik Chatterjee, Group CFO; at a press conference in Mumbai on Tuesday.

Our Bureau

Mumbai, Oct. 27 Tata Steel’s net profit almost halved to Rs 903 crore (Rs 1,788 crore) during the second quarter ended September 30, primarily due to a sharp fall in steel and ferro alloy prices.

Net income was down 16 per cent despite production rising 14 per cent to 1.52 million tonnes (1.32 mt) on the back of steep rise in input cost such as coal and iron ore in the quarter under review.

Mr H. M. Nerurkar, Managing Director, Tata Steel, said the performance in the quarter may not look that convincing as steel prices in the comparative quarter last year were at a historic high.

“The performance was affected by the planned shutdown in some of our units. The company has also accumulated some slabs which will be utilised in the next three months,” he added.

Realisations fell to Rs 29,900 a tonne in the second quarter of FY10 from Rs 40,000 a tonne recorded in the same period last year.

Besides, ferro chrome prices have come down from Rs 1 lakh a tonne to Rs 40,000 in the second quarter.

Coal cost for the company is expected to come down substantially in the coming days as the long-term contract signed at a high price will expire soon.

Coal costs

Mr Koushik Chatterjee, Group Chief Financial Officer, said, “The blended coal cost will come down from about $280 a tonne to $160 in the December quarter. The third quarter will be much better on improvement in production and fall in input cost.”

There may be an increase in coal and iron ore prices in the next quarter as Chinese companies stock up their raw material requirement. However, Tata Steel will be largely protected due to captive raw material sourcing, he added.

Debt paid off

Mr Chatterjee said the company paid off Rs 1,945 crore of high-cost debt and prepaid £100 million of debt in Corus. As of September 30, Tata Steel had Rs 24,236 crore of net debt, he added.

The company’s EBITDA margin fell to 35 per cent from 50 per cent due to dip in realisation. Tata Steel EBITDA stood at Rs 1,998 crore (Rs 3,421 crore).

“Fall in ferro alloy prices has shaved off about Rs 500 crore in operating profit and another Rs 1,500 crore was lost due to lower steel prices. However, higher production has offset a drop of another Rs 600 crore in operating profit,” he said.

Mr Kirby Adams, Managing Director, Tata Steel Europe, said though there are signs of improvement in parts of Europe especially in France and Germany, GDP contraction continues in the UK.

“Tata Steel Europe has managed to benefit from the weakness in pound sterling against major currencies by tapping export markets more efficiently,” he added.

On the Teesside Cast Products, Mr Adams said the company has managed to secure orders to keep the company operational till December.

The company shares on BSE were down seven per cent to Rs 501 on Tuesday.