Tata Steel’s stock rose 4.8% on Thursday to Rs 585.55 per share after the company announced strong standalone financial results for the quarter ended December. The BSE Sensex closed the day only marginally up.
Total operating revenues increased 32.5% year on year to Rs 6,374.88 crore. Revenues from steel business, which accounted for 86% of the total gross revenues, grew 30.6%, helped by robust demand from the construction and auto industry. Analysts attribute the growth in revenues to sales of higher-end products and improved price realisations. Other businesses and ferro alloys and minerals contributed the rest of the revenues.
Operating profit margins expanded by 318 basis points (100 basis points make one percentage point) to 33.83%, due mainly to an 11.6% decline in raw material costs. Total expenditure grew at 26.4%, slower than the rate of revenue growth. Operating profit thus increased 46.2% to Rs 2,156.9 crore.
Net profit zoomed 155.6% to Rs 1,191.75 crore, partly on account of an exceptional item worth Rs 126.8 crore in last year’s December quarter pertaining to exchange loss. Profit before tax and exceptional items increased 96.4% to Rs 1,742.56 crore, helped by a slower rate of increase in depreciation costs (up 4.3%) and interest expenses (up 19.3%).
It must be noted here that last year’s December quarter was adversely hit by falling demand for steel due to recession. Steel prices have since started moving up and this is expected to improve earnings in the March quarter.
On a sequential basis, the company managed to maintain margins and posted 31.9% growth in net profit.
Meanwhile, Tata Steel and Nippon Steel Corp have agreed to set up an automobile-grade steel venture in India, entailing an investment of 35 billion yen ($388 million). Tata Steel will have a 51% stake and Nippon the rest.
Most analysts like the stock and investors could consider it on declines.
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