Tata Steel Q3: Net profit falls 43% to Rs 295 crore, but beats estimates; India volumes increase

Tata Steel Q3 net profit falls 43% to Rs 295 crore, but beats estimates

India's second-largest steel producer, Tata Steel Ltd, beat analysts' expectations to report a consolidated profit of Rs 295 crore for the October-December quarter, albeit being 43 percent lower over the same quarter last year. According to a Moneycontrol poll of eight analysts, the steel major was expected to report a net loss of Rs 371 crore for Q3.

Despite the company reporting higher volumes during the quarter, the company, like the rest of the steel industry, were under pressure from cheap imports from China and other territories, such as Vietnam and South Korea, which caused realisations to decline across all of its markets- India, United Kingdom, and the Netherlands.

The company also beat Street views for the consolidated topline, earning Rs 53,648 crore by way of revenue from operations, against an estimate of Rs 52,846 crore. However, with steel prices being either flat or being on a declining curve during the quarter, the revenue for the quarter represents a 3 percent drop on a year-on-year basis.

In provisional production and sales figures released earlier in January, Tata Steel's India operations reported delivery volumes of 5.29 million tonnes for Q3, higher by 8 percent year-on-year, and also higher by 4 percent over the July-September quarter. The company attributed the increase in sales to steady domestic demand, and a "strategic presence" in exports. Sales volumes rose in The Netherlands as well, although supply to the company's UK downstream operations has also provided demand support.

To note the impact of cheap imports despite healthy sales volumes. Tata Steel said in an investor presentation that elevated Chinese steel exports, as well as low prices in the world's largest steel producer are weighing down prices elsewhere as well. It noted that Chinese steel prices were lower by around $500 per tonne, while exports were higher by around 20 percent year-on-year. Steel prices in the United States and Europe were also lower by 2 percent and 5 percent respectively.

While sales volumes were higher, and total expenses declined by around 2.3 percent during the quarter against the year-ago period, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the quarter on a consolidated basis declined by around 5.4 percent to Rs 5,994 crore. EBITDA per tonne, a key metric to measure market competitiveness, also declined year-on-year to Rs 7,759, similar to that of its largest rival, JSW Steel, which reported an EBITDA per tonne of around Rs 7,800.

After one quarter of being profitable at the EBITDA level, Tata Steel's Netherlands operations returned to an EBITDA loss. While the company's UK operations remained loss-making at the EBITDA level, the reduction of fixed costs owing to its closure of the Port Talbot works for restructuring operations helped narrow the loss, said Koushik Chatterjee, Tata Steel's executive director and chief financial officer.

The company has started its 1.2 billion pound restructuring process in the UK, with the closure of blast furnaces and the installation of electric arc furnaces for "green" steelmaking. In its long-overdue restructuring in its Netherlands operations, for which the company has faced regulatory action due to potential violation of pollution norms, Tata Steel said that it is engaged in negotiations with the Dutch government for financial support for the restructuring process.

Back in India, the company said that it is onstreaming capacity from its newly-commissioned 5 million tonne per annum (MTPA) blast furnace in Odisha's Kalinganagar, with some of the allied facilities also being approved by automobile manufacturers. Consolidated net debt for the quarter was at around Rs 85,800 crore at the end of December 31, reducing by around Rs 3,000 crore.

"Our growth plans in Kalinganagar are on course. The new blast furnace has produced around 0.56 million tons during the quarter and is ramping up to rated capacity. The Continuous Annealing Line (CAL), which is a part of the 2.2 MTPA cold rolling mill complex, has been commissioned in December and has received facility approvals from some of the major automotive OEMs," said T.V. Narendran, the company's managing director and chief executive officer.

As for Odisha, Tata Steel said in a note with its balance sheet that it has filed a curative petition in the Supreme Court against a law, the ORISED Act, passed by the state that taxes mineral-bearing land, after an apex court judgment in July 2024 opened the doors for states to tax mineral-bearing land. The court noted that the MMDR Act, which governs mining in India, does not stop states from levying taxes from mineral-bearing land.

Major players in the metal industry have either approached courts, or have lobbied the Union government to amend the MMDR Act to remove the state's authority to tax mineral bearing land. One review petition against the judgment was dismissed in September 2024.

Tata Steel has extensive mining interests in Odisha, especially in iron ore and chromite. While its FY24 report recognised contingent liabilities of more than Rs 17,000 crore due to the state level law, the company said in its results that it has not recognised any liabilities due to the ORISED Act at the end of the reporting quarter, based on uncertainty in the legal process, and after legal advice. The company added that any potential outflow or financial impact from the matter is "unlikely".

On January 27, Tata Steel's shares on the National Stock Exchange closed 2.5 percent lower at Rs 126.55 apiece.