Tata Steel stuns Street with Rs 2209 cr loss

Tata Steel, the world’s sixth-largest steelmaker, fell to a surprise net loss in the June quarter on a slowdown in demand in Europe and the United States and said there were weak signs of a global recovery.

“There are some weak signs of recovery in the global scene in terms of iron prices seeing some adjustment,” group chairman Ratan Tata said at the company’s annual general meeting on Thursday.

“The auto industry in Europe and United States is improving and this will increase the demand for auto in these markets.” He, however, added that it is too early to say this recovery is sustainable.

On a consolidated basis, Tata Steel reported a net loss of Rs 2,209 crore for the first quarter as against a net profit of Rs 3,901 crore for the same period last year.  Consolidated net sales fell to Rs 23,181 crore from Rs 43,375 crore.

The earnings before interest, tax, depreciation and amortisation (Ebitda) margin declined to just 0.9% for the quarter as against 17% for the corresponding quarter last year. The profit after tax (PAT) margin for the steelmaker dipped to a negative 9.5% as against 9% for the first quarter last year. 

The company, whose shares ended 5% lower on the BSE on Thursday, said it was aiming to rationalise operations in Europe and sharpen its focus on cost management.

Analysts said a rebound in earnings would be difficult in the absence of a revival in demand. “There is still no enthusiastic sign of demand coming back in Europe and that remains a worry,” said Niraj Shah, a sector analyst at Centrum Stock Broking in Mumbai.
Tata Steel will reach 80% capacity utilisation by the end of the current fiscal and 100% by the next, Tata said.

He said the world consumption has contracted by 13%, with the exception of India and China — where the consumption has increased by 4%. “The greatest decline (20%) has been in western Europe, United States and Germany, which are our major markets,” Tata pointed out.

The group chairman said the company is scouting in regions like Brazil, Ivory Coast, Canada to acquire raw material like iron ore and coking coal for Corus, the European arm of the steelmaker. “We hope to achieve 50% captive raw material by the year 2015,” he added.

Meanwhile, the company has got shareholders’ approval to raise Rs 5,000 crore via securities issue. The money will be used for the capital expansion, debt payment and working capital needs of the steelmaker.

Tata also said that Hemant Nerurkar, the executive director and chief operating officer of Tata Steel, will be the next CEO of the company.