Tata Sponge reported a disappointing set of numbers in the quarter ended June. Its revenues are down 30 percent and profits have fallen by more than 90 percent. DP Deshpande, MD of Tata Sponge, says the primary reason behind the disappointing numbers is that realisations in the market have dropped. He does not see the situation in terms of demand for sponge iron improving dramatically in the next three to six months.
Below is the verbatim transcript of DP Deshpande's interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.
Reema: It is a very disappointing set of earnings - your revenues are down 30 percent, your profits have fallen by more than 90 percent. Can we expect a recovery at all; say in quarter two or quarter three and what could be the nature?
A: Primary reason for why the earnings have fallen is because realisations in the market have dropped. The reason for that is the poor demand for sponge iron and that is also explainable by the poor demand for steel and Chinese imports which are getting into and competing with this. Having said that, the situation, at least for the next three to six months is not likely to improve dramatically.
It might just improve a bit compared to what it is but it might not improve dramatically in which case we have to look at what else can we do and what else are we doing. So we are banking on the iron ore prices to come down. There are large numbers of players in this business who would not be able to stand up under this kind of margin pressure especially the iron ore prices continue to be where they are.
That is one possibility which is emerging and I think there are some indications here and there that the iron ore prices are currently very high. The international iron ore price have fallen significantly whereas the domestic iron ore prices have not fallen as much compared to what they were earlier.
Latha: So it doesn't work for you? Can't you use imported instead of NMDC’s iron ore?
A: Imported is anyway more expensive than domestic one. That way the domestic iron ore competes with the imported iron ore landed at our plants. However, the fall in the domestic iron ore prices is more expected and it will happen because many players would cut back on production or will not be able to sell so mines will come under pressure so it will tend to happen over the next three-four months. There is a one change which I would expect and which will probably improve the earnings to the company a little bit more.
There is a little bit of indications of realisations going up a little bit compared to what they are.
Possibly this current realisation level is also a speculatory realisation that it is terribly bad etc. Therefore there are some early indicators in last one week where prices are tending to show up. That is the other reason by which its performance could improve thereafter. However, having said this, on an overall situation the picture is not as good as it was in last year.
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