Tata Steel Ltd reported a profit in the fiscal-second quarter from a loss in the year-ago period, but its earnings missed analysts’ estimates by a wide margin.
The company reported a consolidated net profit of Rs1,017.8 crore in the three months ended 30 September. That compares with the Rs 1,663 crore profit estimate by analysts in a Bloomberg survey. In the same quarter last year, Tata Steel had reported a loss of Rs 49.4 crore.
The main reason behind the company missing estimates is that, Tata Steel’s earnings before interest, taxes, depreciation and amortization (Ebitda) of Rs 4,725.8 crore during the quarter came in well below analysts’ expectations of Rs 5,235 crore despite rising by 52.8% from the year-ago period.
The Ebitda margin widened 320 basis points to 14.6% from a year earlier on lower raw material costs. A basis point is one-hundredth of a percentage point.
Tata Steel, however, managed to meet revenue estimates by reporting a 19.7% jump from the year-ago period to Rs 32,464.1 crore. Sales volume jumped 15% from the year-ago period to 6.45 million tonnes.
The company said it had made the £550 million payment to the British Steel Pension Scheme (BSPS) during the quarter and accounted for it under other comprehensive income.
“The Pensions Regulator has approved the Regulatory Apportionment Agreement in respect of BSPS and payment of £550 million has been completed. The BSPS has been now separated from Tata Steel UK and number of affiliated companies. The next step would be completion of necessary formalities to set up a new scheme with lower risk profile following member consent process led by trustee,” the company said.
Tata Steel said Ebitda in its standalone India business rose 71% from the year-ago period to Rs3,408 crore and was a function of both higher volumes as well as realizations. It added that its plant at Kalinganagar has been ramped up to operate at full capacity.
The company said sales volume in its European operations rose 15% from a year earlier due to improvements in the supply chain and some one-off sales. European revenue rose 32% year-on-year, while Ebitda fell 29% to £89 million due to lower spreads and higher raw material prices.
Tata Steel said its gross debt rose by about Rs 2,447 crore during the quarter and stood at Rs 90,259 crore, mainly due to working capital requirements and foreign exchange lines. The company incurred a capital expenditure of Rs1,834 crore during the quarter.
Abhisar Jain, an analyst at Centrum Broking Ltd, while terming Tata Steel’s September quarter profit slightly below his estimates, said that the most interesting aspect about the management’s commentary post the results was that it remained non-committal on its expansion in India, despite now operating at full capacity. “I think it’s closely looking at the ongoing insolvency proceedings for inorganic growth before committing a large brownfield capex,” Jain said.