Tata Steel Posts 47% Profit Jump on Demand Boom, Announces Stock Split

(Bloomberg) -- Tata Steel Ltd.'s quarterly profit jumped 47% as demand for the alloy boomed, and the company announced a stock split amid a sharp run-up in its share price.

Group net profit surged to 97.6 billion rupees ($1.3 billion) in the January to March period, compared with 66.4 billion rupees a year earlier, it said Tuesday. That beat an average analysts' estimate of about 95 billion rupees.

Sales advanced 39% to 693.2 billion rupees, while costs rose 44% to 576.4 billion rupees from a year earlier. The company also announced that each share with a face value of 10 rupees will be split into 10 to boost liquidity and make the shares more affordable for investors.

The mill's share price has more than doubled since December 2020 amid explosive demand as countries across the planet unleashed stimulus to prop up their economies. Tata Steel along with its domestic counterparts is also poised to gain from a supply gap created by Russia's invasion of Ukraine, as consumers from Europe to Africa seek alternative steel supplies.

Single-digit growth in India's steel demand driven by the government's focus on infrastructure and high steel prices may help cushion Tata Steel and its peer JSW Steel Ltd. from elevated input expenses, according to Bloomberg Intelligence. Higher raw material costs have eaten into margins of metal producers globally as supply chains get roiled by the war in Ukraine and energy crisis in some countries.

“There has been some sort of hesitation to buy because there was concern that steel prices are too high and that was hurting some of the customers as far as working capital is concerned,” T.V. Narendran, managing director of the Mumbai-based firm, said during a post-earnings briefing.

“But fundamentally, demand has been strong in India,” driven by the construction and automotive sectors, he said, adding that the outlook for consumption in the South Asian nation and Europe will be robust.

Debt Reduction

Tata Steel ended the financial year to March with a record crude steel production of 19 million tons in India, the company said last month. Sales in its India business rose 10% year-on-year during the quarter, while the Europe unit saw a drop in deliveries.

The company pared gross debt to 755.6 billion rupees last financial year, it said in a statement. Even with the acquisition of Neelachal Ispat Nigam Ltd., the company will still look to cut debt further by 75 billion rupees or more this year depending on cash flows and the market, Chief Financial Officer Koushik Chatterjee said.

Tata Steel expects to spend 120 billion rupees as capital expenditure this year and could scale it up further as more growth plans get finalized, Chatterjee said.

Shares of Tata closed 1.9% higher in Mumbai on Monday. Indian markets are shut on Tuesday for a public holiday. Analysts have 30 buy recommendations on the stock, 3 holds and 1 sell, according to data compiled by Bloomberg.