Metals major Tata Steel Ltd on November reported a consolidated net profit of Rs 759 crore for the quarter ended September 30, 2024, returning to profit having posted a net loss of Rs 6,511 crore in the year-ago period.
Despite the positive bottomline, the company's revenue declined 3 year-on-year percent to Rs 53,905 crore in Q2FY25, as the Indian steel industry continued to battle sluggish pricing due to cheap imports, mainly from China, even as steel deliveries in India improved marginally to 5.11 million tonnes, against 4.82 million tonnes in the same quarter last year.
The company's management admitted that pricing pressures in China, and consequently all over the world, played a part in a "complex" macro-economic environment for the steel industry during the quarter.
"Global operating environment remained complex, with key regions facing subdued growth. Macro-economic conditions in China continued to weigh on commodity prices including steel. In India, steel demand continued to improve but domestic prices were under pressure due to cheap imports," said T.V. Narendran, managing director and chief executive officer of Tata Steel, in a post-earnings press release.
The loss in the reporting quarter last year was due to a large provision - around Rs 6,899 crore that the company had taken for its United Kingdom operations related to the ongoing restructuring operations there. For Q2, Tata Steel said in a note that it has recognised an additional provision of Rs 34.21 crore related to the closure of heavy-end assets at the company's UK operations.
The company's consolidated earnings before interest, taxes, depreciation, and amortisation (EBITDA) were Rs 6,224 crore, higher than the Rs 4,315 crore reported in the same quarter last year, as the marginal increase in demand was coupled with declining input costs. The EBITDA margin for the quarter stood at 12 percent, Tata Steel said in a release.
The company's net debt kept on growing on the back of Rs 8,583 crore in capital expenditure spending for the April-September period, largely in India as it operationalised its 5 million tonne per annum (MTPA) expansion in Kalinganagar. As on September 30, 2024, Tata Steel's net debt was at Rs 88,817 crore, against Rs 82,162 crore at the end of June 2024.
Cheap imports, indifferent demand hurts India operations
As has been the case with its competitors, Tata Steel too struggled to have a hold on steel prices in the Indian market, as cheap imports from countries such as China and Vietnam continued to drive prices south, affecting realisations. In an investor presentation, Tata Steel noted that Chinese steel prices have been under pressure, with hot rolled coil steel prices hovering at around $125-130 per tonne, down from a peak of around $350 in September 2021.
On a standalone basis, which includes most of Tata Steel's Indian operations, EBITDA on a per tonne basis declined to Rs 13,131, against Rs 13,646 a year ago, with weak pricing being partially made good by slightly improving volumes on both an annual and sequential basis.
Despite the Union government announcing a capital expenditure spending target of over Rs 11 lakh crore for FY25, analysts have noted that most of the spending is expected to be back-ended during the fiscal, including in segments crucial to the iron and steel industry, such as roads and highways. Shipments to all key segments, such as auto and ancillaries, real estate, infrastructure, packaging, and others, remained largely flat during the quarter, according to an investor presentation.
UK woes continue, mixed picture in Netherlands
Even as the company continues its extensive 1.25 billion pound-restructuring in its UK operations, its revenue in rupee terms has continued to decline, as demand remained subdued. For the quarter, Tata Steel UK earned Rs 6,515 crore in revenue, lower against the Rs 7,288 crore reported a year ago. The EBITDA loss in the country widened to Rs 1,589 crore, against a loss of Rs 1,367 crore in Q2 FY24.
Tata Steel closed the second of the two blast furnaces at its steelworks in Port Talbot, Wales, during the quarter, and had earlier closed the other blast furnace, coke ovens, and other assets at the site. The company has inked an agreement with Tenova to construct an electric arc furnace at the site to replace the blast furnaces, with major construction set to begin mid-2025.
Koushik Chatterjee, Tata Steel's executive director and chief financial officer, added that downstream operations in the UK would continue to operate, for which the company will source substrate. The company also added that it will continue to support redundant employees in the UK, chiefly at the Port Talbot works, with the "best ever" support package.
Across the North Sea, Netherlands has recovered for the company in the past few quarters, on the back of limited industrial recovery in parts of Europe, as well as the West Asia conflict limiting Chinese steel supplies. During the quarter, deliveries improved to 1.50 million tonnes, against 1.23 million tonnes in Q2 FY24, and 1.47 million tonnes in the April-June quarter. However, the April-June figures include transfers to the company's UK downstream operations, excluding which its deliveries declined on a sequential basis.
Even as raw material costs declined both annually and sequentially for the quarter, sluggish demand drove down steel prices, and consequently realisations. Tata Steel's EBITDA in the Netherlands for the quarter was Rs 243 crore, against a loss of Rs 1,145 crores last year, but lower than the Rs 453 crore reported in the April-June quarter.
On November 6, Tata Steel's shares on the National Stock Exchange closed 1 percent higher at Rs 153.81 apiece. The company declared its results after markets closed.
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