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Tata Steel swings to profit on strong volumes

Thursday, 15 May 2014 - 7:20am IST | Place: Mumbai | Agency: dna

Tata Steel posted a consolidated net profit of Rs 1,071.19 crore in the fourth quarter ended March as against a loss of Rs 6,668 crore in the year-ago period on the back of strong volumes and better realisation in both Indian and European operations.

The company had posted a loss of Rs 6,668 crore in the year-ago period.

Tata Steel's consolidated net sales for January-March rose nearly 23% on year and 15.4% sequentially at Rs 42,017 crore.

Overall volumes jumped to 7.62 million tonne (mt) from 6.56 mt, as sales in India grew to 2.43 mt and European sales jumped to 4.04 mt. However, the Tata group company's overall realisation took beating due to headwinds in south east operations as it fell to Rs 6,449 per tonne from Rs 6,655 per tonne in year ago quarter.

Tata Steel's consolidated operating profit for the fourth quarter improved to Rs 4,917 crore from Rs 4,368 crore year ago mainly due to better realisation in India and Europe. However, realisation from Southeast Asia saw a significant fall to Rs 754/tonne from Rs 2798/tonne. Indian realisations improved to Rs 16,831 per tonne from Rs 16,291, while Europe saw improvement to Rs 2,006 per tonne from Rs 1,794 per tonne.

The revamped blast furnace in the UK together with recovery in euro zone led to an increase in volumes compared with the previous year, Karl-Ulrich Köhler, MD & CEO of Tata Steel in Europe, said. He, however, said that selling price pressure continued affecting the company operating margins in the region.

"Europe is suffering from overcapacity, which means pricing power is limited. While there was a decrease in raw material prices, its benefit would come with a lag effect, but customers asked for lower prices immediately causing margin squeeze," Kohler said.

Demand in European Union is expected to show further improvement of around 3.9% in April quarter. However, Tata Steel would continue its focus on keeping operational cost under check, the company said.

Tata Steel India's crude steel production grew 8% on-year to 2.48 mt, while its sales rose 7% on-year to 2.43 mt. "Our brownfield expansion of 2.9 mtpa in Jamshedpur fully ramped up in the second half, resulting in record high production of crude and saleable steel notwithstanding our scheduled maintenance shutdowns in Q3," T V Narendran, managing director of Tata Steel India and Southeast Asia, said.

The Jamshedpur-based company restructured its marketing and sales division in the last fiscal and realigned for customer segments like automotive, branded, industrial and downstream than the earlier focus of just long and flat products.

Tata Steel's current net debt stands at Rs 70,000 crore and its average interest cost is around 9.8-10% in India and 6.6.5% in Europe.

On debt refinancing plans, Koushik Chatterjee, group executive director (finance and corporate), said, "Refinancing will happen when it has to happen. We will take a call when it is due. A large part of our capital is being spent in India. We will see absolute reduction in debt as cash flows would improve after commissioning of Odisha plant. We have always focused on India sourcing of funds."

Tata Steel's ore requirement of 13 mt in India is sourced from its captive mines. The Supreme Court in the recent hearing on illegal mining in Odisha had indicated that there could be a Goa-like mining ban in the eastern state as well. Of the 56 operating leases in Odisha, 26 fall under second and subsequent renewal. This includes six of Tata Steel's iron and manganese leases. Reacting on this development Chatterjee said, "We are operating with all statutory clearances and therefore, I think the court will surely take cognizance of this. Any good company has a plan B and so do we…" However, he refused to elloborate the plan B.

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