Tata Steel Ltd., India’s biggest producer, was set to climb the most in more than four years in Mumbai trading after its first-quarter profit almost doubled, aided by a one-time deferred tax gain at its European unit.
The shares soared as much as 9 percent to 263 rupees, the most since May 20, 2009, and traded at 256.65 rupees as of 9:23 a.m. local time. The surge helped pare the stock’s decline this year to 40 percent, compared with a 0.8 percent drop in the benchmark S&P BSE Sensex.
Group net income, including that of unit Tata Steel Europe Ltd., climbed to 11.4 billion rupees ($186 million) in the three months ended June 30 from 5.98 billion rupees a year ago, the Mumbai-based company said yesterday in a filing. The median profit of 19 analyst estimates compiled by Bloomberg was 3.05 billion rupees. Sales fell 3 percent to 325.5 billion rupees. The company had a deferred tax gain of 4.15 billion rupees, compared with a 1.88 billion rupee expense a year ago.
“Tata Steel’s performance in Europe was a positive surprise,” said Bhavesh Chauhan, a Mumbai-based analyst at Angel broking Ltd., who has a buy rating for the stock. “The company has said it would be able to maintain the performance with its internal cost-saving measures.”
Higher production in Europe and India helped Tata Steel increase sales volumes, while cost-cutting measures boosted profitability. Tata Steel sold 3.14 million tons of the alloy in the last quarter in Europe, which accounts for two-thirds of its output, compared with 3.21 million tons a year earlier. Group shipments rose 7 percent to 6.1 million tons.
“There have recently been encouraging signs of improving economic conditions in some European economies, the U.K. in particular,” Karl-Ulrich Koehler, chief executive officer of the Tata Steel Europe said in the statement. “We are poised to capitalize should these translate more strongly into increased demand from steel-intensive sectors.”
Earnings before interest, tax, depreciation and amortization, a measure of operational profitability, rose 4.9 percent to 37.6 billion rupees. That was 11.4 percent of revenue, compared with 10.6 percent a year ago, according to the statement. The company saved 3.8 billion rupees in costs last quarter, Koushik Chatterjee, chief financial officer, said in an conference call with analysts yesterday. The tax gain came from the company’s operations in the Netherlands, he said.
Total expenses fell 3.8 percent to 305.2 billion rupees in the quarter, while raw material expenses dropped 9.9 percent to 104.4 billion rupees, the company said.
Net debt at the steelmaker, part of India’s biggest business group, was 612.9 billion rupees as of June 30, the company said in a statement. The company had 101.8 billion rupees of cash as of that date, it said.
Tata Steel has expressed interest in Stemcor Holdings Ltd.’s India assets, which comprise a 5 million-ton-a-year iron ore pellet plant and a mine with reserves of 100 million tons of the steelmaking raw material in Odisha, Chatterjee said. The assets are “next door” to a 6 million ton-a-year factory Tata Steel is building in the state, he said. Other suitors for the assets are rivals JSW Steel Ltd. and Jindal Steel Ltd.