Tata Steel swings to profit in Q3 on strong India demand, misses estimates

Steel companies benefitted in India from an uptick in steel prices amid strong demand fueled by heavy infrastructure spending by the government, but higher coking coal costs weighed on the gains. The companies may not have been able to pass on the full impact of rising costs due to the availability of cheaper Chinese imports in the market.

"Global operating environment has been complex, with economic slowdown in China and geopolitics weighing on commodity prices in general. During this quarter, China has exported between 7 to 8 million tons of steel every month, which is the highest since 2015 and this has adversely impacted global steel prices as well as profitability," said chief executive officer T.V. Narendran.

The results come amid Crisil's predictions that the steel sector in India is poised to clock its third consecutive year of double-digit growth, at 11-13 percent on-year in the current fiscal.

The steel major's net debt stands at Rs 77,405 crores. "Our group liquidity remains strong at Rs 23,349 crores, which includes cash & cash equivalents of Rs 10,825 crores," the company said in a statement.

The company has spent Rs 4,715 crores on capital expenditure during the quarter and Rs 13,357 crores between April-December.

India demand remain robust

India revenues were Rs 35,011 crores and were broadly stable on Q-o-Q basis, the company said. "The consistent growth in India deliveries has been aided by crude steel production being close to 5 million tons across the quarters in this financial year," added Narendran.

The domestic steel major said that crude steel production in its India unit stood at 5.35 million tonnes (MT), up six percent quarter-on-quarter (QoQ) as well as on a year-on-year (YoY) basis.

Continued strength in Indian steel demand helped the steelmaker clock ‘best-ever 3Q’ sales with domestic deliveries of 4.88 MT.

Deliveries for the Industrial Products & Projects segment increased by around five percent QoQ and six percent YoY. Among the sub-segments, engineering registered the best-ever quarterly sales. The company's Automotive & Special Products segment deliveries recorded an increase of around eight percent QoQ and 22 percent YoY.

Gloomy performance in Europe

Revenue from Europe operations fell 12.5 percent to Rs 18,141.97 crore in the quarter. "The UK business continues to face production shortfalls arising from the end-of-life condition of several of its heavy end assets. In Netherlands, we expect BF#6 to restart by the end of January," said the company's chief financial officer Koushik Chatterjee.

Tata Steel's UK liquid steel production for the quarter stood at 0.72 MT and was marginally lower on a QoQ basis due to operational issues. Deliveries stood at 0.64 MT and were lower both on QoQ and YoY basis due to subdued demand dynamics.

Tata Steel Netherlands's liquid steel production for the quarter stood at 1.19 MT, while deliveries stood at 1.30 MT, up 5 percent QoQ. On a YoY basis, production and deliveries were lower due to the relining of one of the blast furnaces.

The company said on January 19 that it will be shutting down the two blast furnaces in its Port Talbot Steelworks in Wales, UK, in phases, a move that may affect up to 2,800 jobs even as the steel major starts talks to transform and restructure its loss-making UK business in line with its green goals.

Tata Steel has committed in excess of £130 million to a comprehensive support package for affected employees of the unit at Port Talbot, UK. This is in addition to the £100 million funding for the Transition Board set up by the company along with the UK and Welsh governments.