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BL Research Bureau

Tata Steel’s overseas operations were expected to weigh on its consolidated results for the September quarter. But even the standalone numbers, disclosed on Tuesday, have come as quite a disappointment.

Lower realisations and higher finance charges resulted in Tata Steel’s standalone sales for the September quarter declining 16.5 per cent to Rs 5,692 crore and net profits (before exceptional items) falling a whopping 53.7 per cent to Rs 1,350 crore.

The numbers were said to be below market expectations.

Tata Steel has managed a ‘decent’ 19 per cent volume growth for the September quarter.

The seven months till July saw India register 1.7 per cent growth in steel production against a decline of 20 per cent in global output. Despite India’s steel sector being tightly placed on the demand-supply equation, price trends have been dictated by the global situation.

With the global weakness in demand exerting pressure, Tata Steel’s average realisations for a tonne dropped to around Rs 35,000 this quarter, compared with Rs 48,000 a tonne during the same quarter last year.

The realisations are lower on account of the bleak global steel scenario and low global capacity utilisation, which will ensure Indian steel prices do not wander far from global prices.

Exports, which accounted for 16 per cent of sales during the same quarter last year, were down to 9 per cent this year.

Even as the company managed to keep a tight leash on costs, operating profit margins stood at 33.7 per cent versus 46.7 per cent for the same period last year, mainly owing to the cut in realisations. Net finance charges, up 54 per cent to Rs 392 crore, also played spoilsport; these could see moderation if Tata Steel manages to replace high-cost debt.

This, coupled with lower margins, has led to deteriorating interest coverage ratio of 4.46 times. The Indian operations with their high profit margins were intended to buffer the debt incurred for acquiring high volume, low margin Corus. In this backdrop, the domestic performance is worrying.

Depressed global conditions also hammered the Ferro Alloys division. This division, which sells chrome and manganese iron alloy, registered a 53 per cent drop in sales and 87 per cent drop in operating profits for the quarter.

Other income did not help the cause, as it was down 68.4 per cent to Rs 76 crore.

More Stories on : Stocks | Steel | Tata Steel Ltd | Microscope

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