Tata Steel's stock may inch upward on Thursday despite a whopping 70% fall in April-June consolidated net profit as the company's operational performance improved across the geographies due to better product mix and cost control measures.
The Tata group company's consolidated net profit fell to Rs 337.33 crore from Rs 1,139 crore in a year ago quarter mainly due to increased finance cost, higher tax rate and exceptional charges of Rs 262 crore on provision for impairment of non-core asset.
During the quarter, Tata Steel sold its entire stake in Dhamra Port resulting in profit Rs 1,314.17 crore, but writing off of goodwill and other assets of Rs 1,576.65 crore of its joint venture Rio Tinto Benga (Mauritius) led to net negative impact of Rs 262 crore. On July 30, Rio Tinto reached an agreement for sale of Rio Tinto Coal Mozambique to International Coal Venture (ICVL) which also included the Benga project in which the company has a 35% stake. Consequently, the company undertook impairment of its investment in the Benga Project.
"The company would hold discussions with ICVL on future plans for those mines after which the requirement for further investment in the mines would be determined," Kaushik Chatterjee, Group CFO said in an earnings concall.
Its net sales, however, rose 11% on year to Rs 36,143.27 crore on higher volumes. The group Ebitda for the first quarter rose to Rs 4,325 crore from Rs 3,755 crore a year ago.
The company's European operations improved despite pricing pressures mainly due to several cost saving measure and better product mix. European deliveries increased by 2% to 3.2 million tonnes(MT) in Q1 FY15 from 3.14 (MT) in Q1 FY14. EBITDA increased by 28% to Rs 995 crore from Rs 777 crore in year ago quarter.
Dr Karl-Ulrich Köhler, MD & CEO of Tata Steel in Europe, said: "European steel demand is moving in the right direction. Though demand remains well below levels we would regard as healthy, we can see greater stability emerging in the markets we serve."
Kohlar added that steel prices have trended down in Europe in part due to falling raw material prices, however rigorous approach to costs led to £30 million savings in Q1. The company hopes to gain cost saving of around £100 million in current fiscal.
India operations saw fall in sales volume sequentially and remained nearly flat from year ago quarter. The company clocked sales of 2.1 MT. Despite flat volumes EBITDA improved 13% from a year ago quarter to Rs 3,266 crore on better realisation and growth in sale of value added products.
TV Narendran, MD of Indian and South East Asia operations, said that the new government's thrust on development of core industries like housing and infrastructure should boost steel demand in the coming quarters. The company's ambitious Kalinganagar Odisha plant is scheduled to start operating by last quarter of this fiscal. The company said it would spend Rs 85,000 crore for the project this fiscal. South East Asia operations remained under pressure due to higher imports from China.
The company is looking at a debt equity ratio of 1.25 through its ongoing debt refinancing of $7 billion. It had raised dual tranche debut bond of $1.5 billion in July.
The company had to recently shut down its ferro alloys plants at Bamnipal following long closure of its Sukinda Chromite Mines. It is currently awaiting Odisha state government orders for the Khondbond Iron Ore Mines and Sukinda Chromite Mines. The Company continues to engage with the state governments and the ministry of mines, Government of India, for processing the express order and the renewal of the mining leases, it said in a statement.
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