Rising costs in Europe party pooper, says Tata Steel

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Rising costs in Europe party pooper, says Tata Steel

Rising input costs and pressure from European operations led to dismal quarter, says Tata Steel.

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Excerpts from India Business Hour on CNBC-TV18 Watch the full show » ALSO READ See latest News about Tata Steel See previous management interviews See what other Experts & Brokerages are saying about Tata Steel Tata Steel BSE | NSE 25/05/12 Are Mutual Funds betting on Tata Steel?

It's been a dismal set of numbers from Indian steel maker Tata Steel as rising input costs and pressure from European operations led the company to a whopping Rs 600 crore loss in the third quarter . Margins too declined significantly to just below 6%.

Speaking to CNBC-TV18, managing director HM Nerurkar says that while Indian operations recorded profits as per plan, it was the conditions in Europe that weighed down on the company. Karl-Ulrich Kohler, managing director and chief executive of Tata Steel Europe agrees, saying that "the last quarter is probably the worst in terms of the cost price increases."

Despite this, sales for the quarter in review saw a healthy 15% growth.

Below is an edited transcript of the interview with Swati Khandelwal Jain. Also watch the accompanying video.
 
Nerurkar: If you notice, Indian operations have made profits as per the plan, but its still not what we expected. More importantly, I think as we all know, the conditions in Europe in the last quarter has not been conducive at all. To give you a rough idea, raw material prices actually went up because of the pricing mechanism and the prices of the finished products have fallen and that's really the main reason why this have happened.

Q: Just take us through how the operations were in Europe and what were the issues there.

Kohler: There is no denial that the European steelmakers currently face real tough times. The probably worst quarter is the last quarter in terms of the cost price increase. Even though there was some ease in raw material prices during that quarter and towards the end of it, we will see that effect come down into our bottom line only in this quarter, so there is a lag effect on raw materials.

Q: We hear that you are looking at another 200 job cuts in some parts of Europe. How that is coming along? Has that really helped you, because you were quite sure of a better performance over the coming quarters?

Kohler: No, I didn't say I am sure about a better performance in the quarters. In Tata Steel Europe, we are on a journey. We have succeeded in going through the consolidation process; in the Netherlands there is roughly a 1000 jobs at risk.

We were one of the earliest to announce our plans; it was prepared in March and announced in May. Last year we said that we would reduce our blast furnace configuration and we did do it on plan because the blast furnace went out of service since September. So we have to streamline our operations and we must get leaner now.