Tata Steel Q3 net profit at Rs 500 crore, lags estimates
Tata Steel Ltd posted a smaller-than-expected third quarter profit on Tuesday partly due to high costs in its main European market which squeezed margins.
Europe is Tata Steel's biggest market and production centre, following its $13-billion acquisition of Britain's Corus in 2007 that gave it a foothold in the region. But the company has struggled to reap benefits from the deal because of Europe's weak economic conditions over the past six years.
Tata Steel Europe needs to import both iron ore and coking coal from outside and that plus continued high energy costs have hurt margins.
The steelmaker posted a net profit of Rs 500 crore for the quarter ended December, compared to a net loss of Rs 789 crore a year ago. Net sales rose 14 per cent to Rs 36,410 crore.
Analysts had expected a profit of Rs 751 crore on revenue of Rs 33,652 crore, according to data from Thomson Reuters StarMine.
Karl-Ulrich Kohler, MD and CEO of Tata Steel in Europe, said the company's focus on cost and cash flow continued, which had supported the year-on-year improvement in core profit, despite lower margins.
"With European economic indicators improving, our efforts will better enable us to benefit from any growth in European steel demand, which remains at historically low levels," Mr Kohler said in a statement.
The world's largest steelmaker, ArcelorMittal, last week forecast higher profits for this year and said steel demand in Europe was rising beyond just a restocking effect.
Tata is the second-largest steelmaker in Europe, which accounts for more than 60 per cent of its total annual capacity of 29 million tonnes.
The company said European delivery volumes rose 6 per cent from a year earlier to 3.19 million tonnes for the quarter and operating profit also improved, but the pace of improvement been slower than expected.
The European Union's apparent steel demand is expected to rise by 3 per cent in 2014, regional steel association Eurofer has said. But Germany's steel association warned on Tuesday the expected recovery could get derailed by fierce competition and rising raw material and energy prices.
India growth holds
Tata Steel, which recently expanded capacity at its Jamshedpur plant in eastern India to 10 million tonnes a year, said quarterly profit at the Indian business jumped 45 per cent from a year ago to Rs 1,519 crore.
The company is bullish about the long-term growth prospects in the country, T.V. Narendran, its managing director for India and South East Asia, said in December.
Its Indian operations have traditionally been more profitable as it operates its own iron ore mines, the main raw material in steelmaking.
Ahead of the results, shares in Tata Steel closed 1.9 per cent higher at Rs 389.75 in the Sensex that ended up 0.1 per cent.
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