Steelmaker Tata Steel has reported a 36.8 percent jump in consolidated net profit at Rs 1,254 crore for the July-September quarter led by income from land sale in Mumbai. Profit in the year-ago period was Rs 916.8 crore.
The company earned an exceptional gain of Rs 1,145 crore on account of completion of sale of a land at Borivali, Mumbai. If this exceptional income removes from profit, then earnings missed street expectations on every front.
Commenting on the performance, Tata Steel group executive director – finance and corporate Koushik Chatterjee said that group’s South-Asian business posted a loss on account of lower profitability in the Thailand division and a provision in the China vertical while Indian operations reported stable operations despite weak steel prices.
Reacting to the earnings, Giriraj Daga of Nirmal Bang told CNBC-TV18’s Menaka Doshi, Anuj Singhal and Senthil Chengalvarayan consolidated EBITDA were below his expectations.
He, however, said his outlook on the company was positive: “The convertor business of Europe should do well. We are not very positive on domestic side since they are captive in terms of iron ore, so that will not benefit but the European business should benefit. So, we are looking for marginal expansion going forward in to FY15 and FY16.”
Below is the transcript of the interview on CNBC-TV18.
Senthil: If you have had a chance to go through the numbers an exceptional gain of Rs 1,145 crore. If you take that off and the consolidated net is only up about Rs 100 crore versus our expectations?
A: Yes, if you look at the EBITDA numbers which we are figuring out is close to Rs 3,640. That is below the expectation. So, the street was close to Rs 4,560 and we were close to about Rs 4,300. So that number is much below the expectation at least on the consolidated EBITDA side.
I agree with you, there is exceptional gains which is why profit after tax (PAT) numbers are looking illusionary at this point of time.
Menaka: But if you take the exceptional gain out this is a very poor performance, would you say it?
A: Yes, it is quite poor performance.
Menaka: What do you expect would have contributed to such an underperformance by this company?
A: We will have to see the details. What you should remember is that the raw material prices have fallen sharply. So we have to check whether they have taken any inventory write down because of the raw material fall in iron ore prices. If that is the case then it may not be a performance but that we will need to figure out after management conference call.
Menaka: This is not looking good in terms of the ongoing outlook for this company in the coming quarters. How would you asses both the raw material cost front because we now have new brokerage prices on iron ore prices falling even further from here on through the next calendar year at least globally. What would you say will be the outlook on Tata Steel from here on?
A: Outlook we are positive I would say. The reason why I would suggest is that the convertor business of Europe should do well. We are not very positive on domestic side since they are captive in terms of iron ore, so that will not benefit but the European business should benefit. So, we are looking for marginal expansion going forward in to FY15 and FY16.
Menaka: To understand that more clearly you are expecting for a big move up in volumes from the Europe side?
A: No, I am expecting improvements in the margin, no volume move up.
Menaka: Improvements in the margin on the back of what?
A: On the back of lower raw material cost in Europe.
Menaka: Because of the lack of captive iron ore is what you are saying?
A: Yes because the iron ore prices has gone down and the steel prices are not gone down as much as the raw material cost have fallen.
Menaka: But isn't that just a lag effect, don't you expect that steel prices will also follow south in a few months from now and catch up with raw materials prices?
A: They have always preceded in the last four years. So, this is the first time we are seeing that they have not fallen as much as steel prices are fallen.
Menaka: So you are holding hopes out that the steel prices will stay up, is it?
A: Yes
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