Tata Steel Q2 fall won't shock market, says Tulsian

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Tata Steel Q2 fall won't shock market, says Tulsian

Tata Steel's dismal Q2 results did not shock analyst SP Tulsian. Infact, he doesn't expect the market reacting too negatively to these numbers either.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » ALSO READ News and Notices about Tata Steel See interviews with Tata Steel Management See what other Experts & Brokerages are saying about Tata Steel See previous Results of Tata Steel Tata Steel BSE | NSE 31/05/12 Are Mutual Funds betting on Tata Steel?

Despite a 16% growth in consolidated net sales, the world's seventh largest steel maker, Tata Steel , posted a shocking 89% drop in profits to Rs 212 crore for the quarter ended September 2011. However, SP Tulsian of sptulsian.com doesn't think the market will react very negatively to this news.

Speaking exclusively to CNBC-TV18, Tulsian said that the profit number is not a shocked because of the absence of other income component. "In Q1, they made Rs 2,920 crore from their mining sale and Rs 442 crore from the sale of Tata refractories," he said.

On the flip side, Tulsian is still of the view that the results are poor. "If you look at the bottomline of the company, there is a drop of about Rs 800 crore from global operations. This is mainly on account of material cost, power cost and forex losses," he explained.

Below is an edited transcript of his interview with Shereen Bhan. Also watch the accompanying video.

Q: How do you see the markets reacting to the Tata Steel's numbers tomorrow? There was an 89% drop as far as profits after tax is concerned, they have got a forex loss of a Rs 150 crore and realizations have been down this quarter as well. Are the troubles in Europe clearly impacting the company?

A: Definitely, the results are not good. But I don't know why the management has not highlighted the other income component which they made in first quarter. If you see, they made Rs 2,920 crore from their mining sale and Rs 442 crore from the sale of Tata refractories in the first quarter. If you see the consolidated numbers, the net profit for Q2 is at Rs 212 crore, while for H1 it is at Rs 5,558 crore, the major portion of which has come from the other income of Rs 3400 crore.

It is true that the raw material cost, power cost and forex losses have contributed to the lower bottomline, but I don't think one can say that this is really a big shocker. This has been a trend with Tata Steel, that the domestic operations are only contributing to the bottomline. If you see their EBIT, which is at about Rs 2,482 crore for Q2, the comparable figure is at Rs 1,641 crore. So that means the drop of about Rs 800 crore has come from the global operations on account of the reverse contributions by the raw material and other expenditure. But this 89% drop has largely to do with the other income the company has booked in the Q1 of FY12.

Q: So you are saying that the market perhaps is not going to react as negatively as one is anticipating and that's because of that significant other income component which is part of its Q1?

A: That's right. Definitely the market will not be taking this result as positive because as I said that there is drop of about Rs 800 crore at the EBIT level on a consolidated basis. Another point to note is that metal stocks per se have been in the negative zone of the market or of the analysts. But, they won't be taking it as a shocker because of the absence of other income of about Rs 3300-3400 crore in the second quarter of the company.