NEW DELHI: Plunging prices and low demand during the first quarter of the financial year (Q1FY20), both globally and in the Indian markets, has hit Tata Steel’s (TSL) bottom line hard. The company on Wednesday announced 63.7 per cent decline in its consolidated net profit for the quarter at Rs 702 crore, against Rs 1,934 crore a year ago.
“The steel sector is facing significant headwinds, which has affected spreads and overall profitability,” said the steel-maker’s MD & CEO TV Narendran, adding that the company has managed to contain the impact on margins.
TSL’s total income grew 1.26 per cent year-on-year in Q1FY20, rising to Rs 35,947 crore from Rs 35,494 crore last year. Its earnings before interest, tax, depreciation and amortisation (EBITDA) also fell a significant 21.7 per cent at Rs 5,530 crore against Rs 7,063 crore last year. However, production and deliveries in terms of volume grew by 11 per cent and 5 per cent respectively.
TSL said steel prices across geographies declined due to weakening economic activity and uncertainty around the US-China trade spat. This saw a sharp rise in iron ore prices due to supply disruptions and elevated coking coal costs leading to a drop in steel spreads by around $80-100/ton in key markets.
“In India, steel prices declined as subdued economic activity, seasonal slowdown and liquidity issues weighed on domestic consumption. Higher net imports further exacerbated the demand-supply balance. In Europe, the steel industry faces significant headwinds in terms of lower economic growth, uncertainty around Brexit and the trade conflict. This, coupled with rising share of imports and elevated raw material prices, has led to a sharp decline in steel spreads,” TSL noted.
“We are implementing a transformation plan (for Tata Steel Europe), which aims to reduce operating costs, rationalise capex and working capital and improve overall cashflows. We are consolidating our presence in India through the proposed merger of Tata Steel BSL with Tata Steel and our ongoing 5 MTPA Kalinganagar Phase II expansion, which will improve our product mix and further rationalise costs,” Narendran said.
MoU to divest 70 per cent stake in Tata Steel Thailand
Tata Steel also announced on Wednesday that it has a Memorandum of Understanding to divest 70 per cent of its shareholding in Tata Steel Thailand to Synergy Metals and Mining Fund.