Tata Steel Q2 Results: Reports Surprise Rs 6,511-Crore Loss On U.K. Impairment
Tata Steel Ltd. reported a surprise net loss in the second quarter of fiscal 2024 on one-time charges on its U.K. operations.
The Tata Group-owned steelmaker reported a net loss of Rs 6,511.2 crore in the quarter ended September, according to an exchange filing on Wednesday. That compares with the Rs 440.7 crore consensus estimate of a profit by analysts tracked by Bloomberg.
The company reported the loss on account of impairment and restructuring costs of over Rs 6,000 crore in the U.K.
Tata Steel Q2 FY24 (Consolidated, YoY)
Revenue down 7.01% at Rs 55,682 crore (Bloomberg estimate: Rs 55,982.1 crore).
Ebitda down 29.6% at Rs 4,268 crore (Estimate: Rs 4,957 crore).
Ebitda margin at 7.66% vs 10.12% (Estimate: 8.9%).
Reported loss of Rs 6,511.2 crore vs profit of Rs 1,297 crore (Estimate: Rs 440.7 crore profit).
Restructuring And Impairment Costs
Majority of the impairment and restructuring costs relate to the decarbonisation project being undertaken in the U.K. The company is undertaking a £1.25 billion investment with the U.K. government to set up a 3 million tonne electric arc furnace at its Port Talbot facility.
The greener EAF is expected to replace the existing 'heavy-end' carbon-intensive assets. Accordingly, Tata Steel has decided to impair these heavy-end assets, resulting in a impairment charge of Rs 2,631 crore.
The shift to EAF is expected to result in total savings of £150–175 per tonne, including £50–60 per tonne carbon cost savings, according to the management.
Tata Steel plans to invest £750 million in the EAF, supported with a grant of £500 million from the U.K. government. The plant is expected to be operational within 36 months.
The company has also recorded a provision of Rs 2,425 crore towards restructuring costs, which includes potential asset closures and redundancy costs.
Additionally, it has recorded provisions of Rs 1,187 crore towards past service costs of the British Steel Pension Scheme. This follows the insurance buy-in of BSPS, which was completed in the previous quarter, de-risking Tata Steel U.K., the primary sponsor of the pension scheme.
Q2 Operational Highlights
Tata Steel's consolidated adjusted Ebitda per tonne declined 27% YoY to Rs 5,869 per tonne, despite India operations' Ebitda per tonne rising 71% YoY to Rs 13,242.
Consolidated production fell 3.2% year-on-year to 7.26 million tonne in Q2, while deliveries declined 2.7% YoY to 6.9 million tonne. This was led by a 17% drop in production and 4.3% decline in deliveries in Europe, as per the company's Q2 update.
Subdued demand and a lower price environment in Europe have led to Ebitda loss of £242 million for Tata Steel Europe. The impact was also intensified by lower volume, on account of ongoing relining operations in one of the two blast furnaces in the Netherlands.
Tata Steel India's production rose 3.9% year-on-year to 4.99 million tonne, while deliveries fell 1.8% to 4.82 million tonne, according to the update.
The company undertook a capex of Rs 4,553 crore during the quarter totaling to Rs 8,642 crore for the half year. The company's net debt stands at Rs 77,032 crore.
Shares of Tata Steel closed 2.2% lower at Rs 116.15 before the results were announced, as compared with a 0.47% decline in the benchmark Nifty 50 on Wednesday.
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