Tata Steel disappoints

Tatat Steel dropped to hit a new low today at Rs.365.10, a fall of almost 4.5%; it has recouped a but but remains in the red at Rs.367 levels currently.

Given the turmoil in the steel sector – a sharp rise in iron ore prices due to supply disruptions and elevated coking coal costs; steel spreads dropping by around US$ 80-100/ton in key markets, domestic steel prices falling to a 2-year low as global slowdown picks up pace, cost of raw material rises, auto sector in a state of complete slowdown and China, world’s 50% steel consumer showing a drop in demand, earnings from Tata Steel for Q1FY20 were expected to be disappointing.

And it proved right – though total consolidated revenue rose 1% (YoY) at Rs.35,947 crore, net profit for the quarter was down 64% at Rs.693 crore. EBITDA came in 15% lower at Rs.5377 crore while margins slumped 290 bps to 15.4%.

On a standalone basis, net profit was at Rs.1539 crore, down 34%. Tata Steel Europe showed a very poor show with revenue at Rs.14,495 crore, down 12% (YoY) but much lower than its Indian revenue at Rs.16,091 crore.

Tata Steel Europe’s EBIT was a mere Rs.62 crore, sharply down from Rs.1664 crore (Y0Y). The European performance was impacted shutdown and downtime in Netherlands. The UK operations had a stable performance post the major repairs of the Blast Furnace earlier in the year.

The Board yesterday approved the signing of a Memorandum of Understanding with Synergy Metals and Mining fund to divest 70% of stake in Tata Steel Thailand in a 70:30 partnership for the Thailand business.

Company’s equity stands at Rs.1145 crore and EPS was at Rs.5.68 (FV of Rs.10). Reserves is at Rs.67,870 crore.