Tata Steel Misses Estimates as Costs Dwarf Return to Profit

Tata Steel Ltd. (TATA), India’s biggest producer of the alloy, missed analysts’ estimates while turning to profit in the fiscal third quarter as higher taxes and raw material costs eroded gains from a demand recovery in Europe. Shares decline.

Net income, including that of unit Tata Steel Europe Ltd., was 5.03 billion rupees ($81 million) in the three months ended Dec. 31, compared with a 7.63 billion rupee loss a year earlier, the Mumbai-based company said yesterday in a statement. Still, the profit fell short of the 6.68-billion-rupee median estimate of analysts surveyed by Bloomberg. Sales rose 14 percent to 364.1 billion rupees.

Tata Steel shares fell as much as 3.2 percent to 377.30 rupees today in Mumbai, the biggest decline since Feb. 3. The stock traded at 379.05 rupees as of 9:53 a.m. The benchmark S&P BSE Sensex index rose 0.6 percent.

The company benefited from an upturn in alloy demand in Europe, its biggest market, after a slowdown in the year ended March 31, 2013 left Tata Steel with excess capacity and shrinking profit margins. To counter the slump, the company cut costs by reducing jobs in the U.K. and using coking coal and iron ore from its own mines in Mozambique and Canada. It also focused on selling high-value products.

Photographer: Brent Lewin/Bloomberg

A pedestrian walks past the gate of the Tata Steel Ltd. building in Kolkata, India. Close

A pedestrian walks past the gate of the Tata Steel Ltd. building in Kolkata, India.

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Photographer: Brent Lewin/Bloomberg

A pedestrian walks past the gate of the Tata Steel Ltd. building in Kolkata, India.

The company’s tax bill increased 57 percent to 8.95 billion rupees in the quarter, compared with 5.69 billion rupees in the year-ago period. Raw material expenses climbed 19 percent to 116.3 billion rupees, inflating total costs 9.3 percent to 364.1 billion rupees, according to the statement.

Earnings from its units fell more than 94 percent to 10 million rupees from a year earlier.

‘Weak’ Indian Market

The rupee’s decline helped to maintain a balance in the local market where sectors including automobiles and construction are facing a slump, Tata Steel said in a presentation on its website. The average value of the Indian rupee declined 13 percent to 61.9902 rupees to the dollar in the quarter ended Dec. 31, compared with 54.1535 rupees in the year-earlier period.

“Indian steel markets continued to remain weak during the quarter with the economy and most of the steel-consuming sectors facing severe headwinds,” T.V. Narendran, managing director of the company’s India and southeast Asian operations, said yesterday in an earnings statement. “We are hopeful that the sentiment improves in the seasonally strong” January-March quarter.

Group net debt stood at 701.3 billion rupees as of Dec. 31, compared with 628.3 billion rupees on Sept. 30, according to the statement.

Demand Rebounds

Steelmakers including ArcelorMittal (MT), the world’s biggest, said in November the worst for the industry was over and demand was likely to climb. Posco (005490), South Korea’s biggest steelmaker, forecast last month sales would increase this year, aided by a revival in global economic growth. ArcelorMittal said Feb. 7 it expects profit to climb 16 percent this year as demand rebounds in the U.S. and Europe.

The European PMI survey that crossed a level of 50 in July for the first time in two years, remained above 50 during the last quarter, according to London-based Markit Economics. Anything above 50 indicates expansion. The European Central Bank forecasts 1.1 percent economic growth in the euro region this year, accelerating to 1.5 percent in 2015.

Tata Steel’s group earnings before interest, taxes, depreciation, and amortization jumped 74 percent to 39.21 billion rupees in the quarter, compared with 22.52 billion rupees a year earlier, according to the presentation. Ebitda at its European operations stood at 87 million pounds ($143 million) in the three months to Dec. 31, compared with a loss of 50 million pounds last year.

Europe

“The asset base we restored and upgraded last year has been running at stable rates, which has led to the continued year-on-year turnaround in financial performance,” Karl-Ulrich Kohler, managing director at Tata Steel Europe, said in the earnings release.

Until December, Tata Steel shipped 810,000 tons of coking coal, a key ingredient used in making the alloy, from the Benga coal project in Mozambique, according to the presentation. The company has a stake and rights to a share of the mine’s production.

The company has also produced 1 million tons and shipped 240,000 tons of iron ore from its mines in Canada. The coal and ore are being used at its European factories, which previously had depended on outside sources for raw materials.

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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