Tata Steel Gains Most in 8 Months on Smaller-Than-Estimated Loss

Tata Steel Ltd., India’s biggest producer of the alloy, gained the most in eight months after posting a smaller loss than analysts estimated.

The shares reversed a three-day drop to climb 4.5 percent to 313 rupees at the close in Mumbai, the most since Sept. 14. The stock has plunged 27 percent this year. Group net loss, including that of unit Tata Steel Europe Ltd., was 65.3 billion rupees ($1.2 billion) in the quarter ended March 31, compared with a profit of 4.33 billion rupees a year ago. That beat the

81.2 billion-rupee mean loss estimate of five analysts in a Bloomberg survey.

In Europe, the company benefited from cost-cutting measures. That combined with falling raw material costs helped it beat analyst forecasts. Europe’s economic crisis, which has resulted in quarterly losses at European steelmakers such as ArcelorMittal and ThyssenKrupp AG, may slow demand at the Mumbai-based group, according to Abhisar Jain, an analyst at Centrum Broking Pvt.

“The fourth-quarter numbers are better than our expectations but there is no reason to believe that the improvement will be sustained,” said Mumbai-based Jain. “The uncertain macroeconomic situation in the continent will limit improvement in earnings.”

Reorganize Business

Tata Steel on Nov. 23 said it plans to reorganize its U.K. business by cutting 900 jobs and closing 12 sites. The proposals are part of a strategy to transform Tata Steel Europe into an “all-weather” steel producer, capable of succeeding in difficult economic conditions, Karl-Ulrich Koehler, managing director of the company’s European operations, said in the statement that day.

The company’s sales rose 0.9 percent to 341.8 billion rupees. Earnings before interest, taxes, depreciation and amortization rose to 43.7 billion rupees in the quarter, from

34.2 billion rupees a year earlier. That beat the 32.85 billion rupee median estimate compiled by Bloomberg. Group deliveries for the quarter rose to 6.56 million metric tons from 6.22 million tons a year ago.

The company has plans to spend about $2.5 billion in capital expenditure, most of which will go in building the new factory in the east Indian state of Odisha, Group Chief Financial Officer Koushik Chatterjee told analysts yesterday. Tata spent 83 billion rupees as of last year on the proposed mill.

It plans to spend $7 billion in phases to build a 6 million ton steelmaking capacity at Kalinganagar in the state. The company has tied up 228 billion rupees of financing for the project with a consortium of 21 banks, Chatterjee said.

Costs Drop

Total operating costs fell 0.5 percent to 317.5 billion rupees in the quarter, while raw material expenses dropped 14 percent to 87.5 billion rupees, the company said. Net debt was

554.2 billion rupees as of March 31, compared with 476.6 billion rupees a year ago, the company said in a statement.

A drop in the cost of inputs and a 9.4 billion rupee gain from the sale of investments trimmed the loss. Prices of coal fell about 30 percent last quarter compared with a year ago, Marek Jelinek, chief financial officer at New World Resources Plc, a coking coal producer in central Europe, said on May 16.

European steelmakers are grappling with excess capacity that’s pushed down prices. The region has capacity to make about 210 million metric tons of steel a year, while demand in a “normal market” is 150 million to 160 million tons, according to industry lobby group Eurofer.

Hot-rolled steel coil, a benchmark product used in automobiles and buildings, declined 8 percent to an average price of 497 euros a ton in the three months ended March, according to Bloomberg calculations based on data from Metal Bulletin.

European Crisis

Tata Steel joins European steelmakers such as ArcelorMittal and ThyssenKrupp AG in reporting a quarterly loss as Europe’s economic crisis saps demand and slower Chinese growth weighs on commodity prices. The company wrote down $1.6 billion of mostly overseas asset values, including $1.35 billion for Europe, in the period. Most of the goodwill at the company’s Port Talbot unit has being taken off, Chatterjee said after earnings yesterday.

Steel usage in the Europe, which constitutes two-thirds of Tata Steel’s output, fell almost 8 percent in the year ended March 31.

“Europe’s economic deterioration last year reversed the modest recovery in European steel demand that had been going on since 2009 and our deliveries fell as a consequence,” Koehler said yesterday in the statement.

Tata Steel will abandon a project in Vietnam, Managing Director H.M. Nerurkar said at a press conference in Mumbai yesterday, without giving a reason. The company signed an accord with Vietnam Steel Corp. in May 2007 for the $5 billion plant, which was to have a capacity of 4.5 million tons a year.