Tata Steel Q2 PAT seen down 43% at Rs 1,122.5 cr

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World's sixth largest steel manufacturer Tata Steel is expected to report a profit after tax of Rs 1,122.5 crore in the second quarter of FY12, a massive fall of 43% as compared to Rs 1,978.8 crore in the corresponding quarter of last fiscal.

PAT is likely to be negatively impacted owing to forex loss during the quarter. However, PAT may be boasted by other income of Rs 814 crore primarily due to the profit from the sale of investment by its subsidiary.

Net sales are seen going up 11% to Rs 31,046.7 crore from Rs 28,090.9 crore during the same period.

EBITDA is expected to go down 15% to Rs 3,113.4 crore in the July-September quarter of FY12 versus Rs 3,672.3 crore in a year ago period.

EBITDA margins are likely to be at 10% versus 13.1% year-on-year.

On quarter-on-quarter basis, net sales are seen going down 5% while PAT is likely to fall 79%.

Profit after tax in Q1FY12 had included Rs 3,882 crore on account of stake sales.

Volumes:

Tata Steel is likely to report a steady improvement in domestic volumes but Tata Steel Europe's (TSE) volumes will disappoint

TSE volumes are likely to decline sequentially led by softer demand in Europe owing to macro headwinds

Tata Steel India sales volumes came in up 3% QoQ and a 1% drop on YoY basis at 1.66 mt

Consolidated sales volumes will be dragged by its European operations

Realizations higher on a YoY basis but margins under pressure due to pressure from European operations

Domestic operation would be less affected compared to its peers from the ongoing raw material crunch due to company's significant backward integration

However, being the global player would be most affected as major of its operations is located in UK which is not expected to do well

TSE margins to decline QoQ led by lagged impact of higher input costs

In India, the increase in volumes will be negated by raising inputs costs and coking coal costs

EBITDA margins are expected to face pressure due to higher operating costs

Realization is likely to remain flattish in domestic operations but there would be a marginal decline in European operations

EBITDA margins in the domestic segment would see a modest decline but TSE's EBITDA would fall drastically

PAT performance

Forex loss is also expected because of the rupee's depreciation against the dollar

Interest costs are likely to come in lower due to part payments of their outstanding debts

PAT was boost because of higher other income from stake sale in Riversdale and Tata Refractories and also the income from settlement of Teesside issue during Q1FY12

Positive story going forward:

Company's initiation towards strategic investment and product line would help the company on a long term basis

Other positives include volume growth in the high margin domestic business and several opportunities at TSE to improve margins in the long-term.