Tata Steel Profit Jumps on Higher Prices Even as Costs Rise

(Bloomberg) -- Tata Steel Ltd.'s quarterly profit more than doubled, lifted by higher prices of the alloy even as rising costs pinched.

Group net profit rose to 95.73 billion rupees ($1.3 billion) in the three months through December, compared with 36.97 billion rupees a year earlier, it said Friday. That compares with an average analysts' estimate of 90.18 billion rupees. Sales climbed 45% to 607.8 billion rupees.

Key Insights

• Global stimulus has unleashed demand for steel and mills have benefited from higher product prices along with a sharp fall in the cost of iron ore. Still, surging costs of coal have squeezed profits. Tata's domestic peer, JSW Steel Ltd., missed estimates as it had to pay more for coking coal and power.
  • Tata Steel's costs in the quarter rose by a third from year earlier. That was partly due to surging international coal prices, Chief Financial Officer Koushik Chatterjee said in a statement.
• Mills in India are ramping up capacity to capture demand from the country's ambitious plans to upgrade its roads, raliways and other infrastructure. Tata Steel, which has pivoted to the domestic market to boost growth, recently bought state-run Neelachal Ispat Nigam Ltd. to take it closer to its goal of doubling capacity to 40 million tons by 2030.
• Tata Steel has been pushing hard to slash debt over the past 18 months, with a target to cut borrowings by as much as $3 billion in the year ending March. S&P Global Ratings estimates the company's adjusted debt will fall by about 5% in the next fiscal year, falling short of an initial estimate of 20% due to the Neelachal Ispat acquisition.
  • The acquisition will be financed largely through a combination of internal funding and bridge loans, Chatterjee said.

  Market Reaction

  • Shares of Tata rose 0.8% in Mumbai on Friday before the results were announced. The stock has jumped almost 80% in the past year.
  • Analysts have 29 buy recommendations on the stock, 3 holds and 2 sell, according to data compiled by Bloomberg.

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  • Steel demand in India has started to improve as the economy recovers and Covid-19 infections begin to ebb, while European operations were underpinned by a strong improvement in sales, Chief Executive Officer T.V. Narendran said in the statement.
  • Steel prices in India and Europe will remain high as raw material costs rise and demand improves, the company said.
  • Tata Steel remains focused on shedding debt while pursuing growth priorities, Chatterjee said.
    • The company slashed net debt to 628.69 billion rupees at the end of December.

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