Tata Steel pares losses; starts production at Kalinganagar plant

Tata Steel on Wednesday reported a consolidated net loss of Rs3,213.76 crore for the quarter ended March 2016, compared with a net loss of Rs5,674.29 crore in the comparable quarter of the previous financial year.

On a sequential basis, however, net loss for the January-March 2016 quarter was higher compared with the net loss of Rs2,127.23 crore in the third quarter of the current fiscal.

Net sales for the company on a consolidated basis declined by 12.51 per cent to Rs29,164.37 crore against Rs33,336.81 crore in the fourth quarter of the previous fiscal.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) at Rs2,188 crore was up 43 per cent compared to December 2015 quarter. EBITDA margin increased by 400 basis points over the sequential quarter.

Underlying pre-exceptional profit before tax increased by 92 per cent compared to the previous quarter while underlying pre-exceptional profit after tax was higher by 105 per cent over the previous quarter.

Exceptional charges primarily relate to the voluntary employee separation scheme accepted by 608 people during the quarter.

The company declared an equity dividend of Rs8 per share.

Tata Steel Group on Wednesday declared its consolidated financial results for the full year (FY'16) and fourth quarter (Q4FY'16) ended 31 March 2016.

The company recorded deliveries of 25.92 million tonnes for the year and 6.94 million tonnes for the quarter on the back of strong performance in India. Turnover was Rs117,152 crore for the year and Rs29,508crore for the quarter.

Tata Steel also announced the start of commercial production at the 3 MTPA Kalinganagar Steel Plant. The stabilisation process is currently underway. The facility will produce flat steel for high end applications enabling the company to expand its product portfolio in the ship building, defence equipment, energy and power, infrastructure, and aviation sectors. It will also consolidate Tata Steel's leadership position in the domestic automotive segment.

Despite a muted market, Tata Steel India operations recorded a 16 per cent sequential growth in the quarter on the back of surge in volumes in high value segments like Auto (19 per cent) and branded products (19 per cent).

For FY16, India deliveries increased by 9 per cent with best ever sales of 9.54 million tonnes, far in excess of the market which grew at 4.5 per cent over the period. This growth was achieved despite heightened competition as India saw an increase in net imports by over 200 per cent in this period and a reduction in the share of domestic players to 84 per cent.

Domestic steel prices in India declined compared to previous quarter and the impact of the MIP did not reflect in the market prices.

Tata Steel India saw strong growth across segments. Automotive and special products sales reached highest ever numbers of 1.43 million tonnes and contributed 15 per cent of total sales.

Branded products and retail sales surged to 3.35 million tonnes and contributed around 35 per cent of total sales.

Tata Steel said its largest brand 'TISCON' recorded highest ever sales of 2.51 million tonnes for FY16, a growth of 13 per cent. The company's retail customer base increased to around 3 million households across India.

Tata Steel India reported  2 per cent increase in production for the quarter January-March 2016 quarter compared to October-December 2015 quarter and 7 per cent increase over October-December 2014 quarter.

It said its consolidated underlying EBITDA for the January-March 2016 quarter rose 171 per cent sequentially to Rs2,270 crore from Rs838 crore in the previous quarter. EBITDA margin expanded by 470 bps to 7.7 per cent compared to 3 per cent in the December 2015 quarter.

Underlying pre-exceptional profit before tax improved to Rs85 crore against a loss of Rs1,227 crore in the October-December 2015 quarter.

Exceptional items comprise redundancy provisions of Rs441 crore in Tata Steel Europe and non-cash impairment in some of the downstream businesses in Tata Steel Europe and Tata Steel Minerals Canada.

Tata Steel Group recorded a 9 per cent increase in deliveries for the quarter largely driven by higher sales in India. Tata Steel Europe saw stable operational performance and deliveries in Q4 increased by 6 per cent compared to Q3. In response to the import and price pressure, a tactical decision was made to focus on higher-value sales in the UK, rather than volume.

There was a drop in realisations across the Group as steel prices slid to 10-year lows.

However, despite these challenges, the consolidated EBITDA for 4QFY'16 increased to Rs2,270 crore on the back of higher deliveries and better operating margins in India, cost benefits from European restructuring and improved performance of the South East Asia operations.

The company incurred capex of Rs11,486 crore in FY'16 of which about Rs3,695 crore was spent on Kalinganagar greenfield project.

The liquidity position of the company remains strong with Rs20,514 crore of cash and cash equivalents, including drawn and undrawn bank lines. The company continued to divest its non-core assets and raised Rs4,478 crore through monetisation of same.

Tata Steel UK Limited signed an agreement with Greybull Capital to sell its Long Products Europe business (See: Tata Steel UK sells long products business to Greybull). The deal will be completed once a number of outstanding conditions have been resolved, including transfer of contracts, certain government approvals and the satisfactory completion of financing arrangements.

The Tata Steel Europe board under the advice of the Tata Steel board is actively reviewing all options for the Tata Steel UK business, including a potential sale of the business.

The Tata Steel Kalinganagar Steel Plant has been commissioning various facilities over the last few months. While the trials at the hot strip mill had commenced in October 2015, the sinter plant commenced production on 14 January 2016 and the hot metal production was initiated on 2 March 2016.

''Tata Steel recorded its highest ever sales at 9.54 million tonnes in FY16 and successfully consolidated its market share despite extremely challenging market conditions. Sales in 4Q increased by 16 per cent with strong growth in key segments such as automotive and branded products,'' T V Narendran, managing director of Tata Steel India and South East Asia, said.

''We continue to invest and build on the equity we have in the market place. Cost improvement initiatives and downstream value addition across product/market segments remain an area of focus. The Kalinganagar facility is stabilising fast and will enable us to further consolidate our presence in existing 'high' end market segments with additional volumes in FY'17. We are well positioned to serve the increase in demand due to overall economic growth and the expected thrust on infrastructure in FY'17,'' he added.

Tata Steel said its SEA operations have turned in encouraging performance in FY'16 as our focus on cost rationalisation starts delivering results.

''While the pressure on the product prices continued during the quarter both in India and in Europe, our operations during the quarter were very resilient across most of the geographies and have reported much improved underlying performance compared to the previous quarter,'' Koushik Chatterjee, group executive director (finance and corporate), said.

While government intervention against unfairly priced imports in India has helped markets stabilise, the UK steel operations continued to be exposed to volatile currency and low priced imports into the country.