(Bloomberg) -- Tata Steel Ltd.'s quarterly profit beat estimates as a sharp drop in the cost of a key steelmaking ingredient blunted the impact of falling product prices globally. The mill expects price and input costs to remain volatile in the current quarter.
Group net profit fell to 77.6 billion rupees ($973 million) in the April to June period, compared with 89 billion rupees a year earlier, it said Monday. However, that beat an average analysts' estimate of about 73 billion rupees. Sales advanced 19% from a year earlier to 634.3 billion rupees, while costs rose 25% to 519.1 billion rupees.
Tata's shares have lost about a third of their value during the quarter as India's oldest mill faced headwinds from a sharp fall in product prices globally following weakness in Chinese demand. The average prices of cold- and hot-rolled steel both fell 13% from a year earlier during the quarter, Bloomberg Intelligence analyst Yi Zhu said in a note. Local peer JSW Steel Ltd. posted an 86% fall in profit last week and the company also slashed its capital expenditure plans.
Some relief has come in the form of lower iron ore prices, which have slumped more than 35% since a high in March. Tata Steel, which has shifted focus to the domestic market with India accounting for about 62% of its sales last year, will benefit from the South Asian nation's ambitious plans to upgrade its creaky infrastructure. That helped the company pivot to the domestic market to minimize the impact of a 15% export tax levied in May.
China's Top Steel Mill Adds Its Voice to Industry's Alarm
“We expect that volatility in terms of steel price and input cost movement to continue in the next quarter but expect the spreads to stabilize in the second half of the year,” Chief Financial Officer Koushik Chatterjee said in a statement, referring to the financial year ending March. “The volatility in commodity prices and immediate impact of the export duty in India have led to an increase in working capital” and cost improvement measures along with an expected pickup in demand in the October-March period should normalize working capital, he said.
Shares of Tata closed 2.6% higher in Mumbai on Monday before the results were published. Analysts have 23 buy recommendations on the stock, 5 holds and 6 sells, according to data compiled by Bloomberg.
Tata Steel said it remains committed to its annual target of slashing its debt by $1 billion. Its net debt stood at 545.04 billion rupees as of June end.
(Updates with management comment and details throughout)
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