Steel, the country''s largest private sector steel manufacturer,
which recently unveiled an ambitious $8-billion bid for
European steel maker Corus, has reported second quarter
results, which are below market expectations. Though volume
growth for the quarter was impressive, operating margins
remained under pressure.
the quarter ended 30 September 2006, Tata Steel has reported
a consolidated net profit of Rs1,139.11 crore, or Rs19.83
per share, after minority interests - an increase of 2.5
per cent over Rs1,111.32 crore, or Rs20.13 per share,
for the same quarter of previous year. Consolidated net
revenues increased 17.53 per cent to Rs6,008.28 crore
from Rs5,112.07 crore a year ago.
the first quarter ended 30 June, 2006, Tata Steel had
reported a consolidated net profit of Rs1,019.18 crore
on revenues of Rs5,764.14 crore.
margins expanded by a modest 4.33 per cent over the previous
year quarter. Operating margins, excluding other income,
declined substantially to 30.8 per cent from 34.7 per
cent during the previous year quarter. On a sequential
basis, operating margins have improved from 30.21 per
cent achieved for the first quarter.
sharp fall in operating margins was mostly on account
of a 30.18 per cent rise in input costs and a 44.14 per
cent surge in power costs. Freight and handling expenses
increased by 11.18 per cent over the previous year quarter.
Staff costs increased 11.06 per cent while other operating
expenses went up by 19.82 per cent.
Steel managed to bring down the ash content in domestically
mined coal, which led to an increase in usage of domestic
coal to 67 per cent of total from 54 per cent last year.
Domestic coal is cheaper than imported coal and this has
helped in preventing further margin erosion.
is clear that Tata Steel has so far not been able to achieve
significant cost reductions at Singapore-based Natsteel
and Thailand-based Millennium Steel, which were acquired
over the last couple of years. On a standalone basis,
excluding these acquisitions, operating margins of Tata
Steel are a much better 35.26 per cent. Any significant
margin expansion at its overseas acquisitions would be
possible only when Tata Steel can supply them with crude-steel
slabs after expanding domestic capacity.
costs for the quarter went up 90.83 per cent to Rs72.61
crore while depreciation charges were higher by 24.79
per cent at Rs246.03 crore. Tax provisions increased modestly
by 2.66 per cent over the previous year quarter.
separation expenses (VRS) went up to Rs44.36 crore for
the quarter as compared to Rs28.76 crore a year ago.
bottom line was supported by a 56.31 per cent jump in
other income to Rs168.14 crore.
steel production during the quarter was at 1.26-million
tonnes as compared to 1.21-million tonnes a year ago while
steel sales increased to 1.19-million tonnes from 1.18-million
tonnes for the corresponding period of previous year.
Exports declined to $116.99 million from $144.26 million
a year ago. The company is targeting a volume growth of
0.5-million tonnes of steel for full year 2006-07 over
revenues from the steel business recorded a growth of
17.09 per cent over the previous year quarter. Ferro alloys
and minerals revenues expanded at 15.56 per cent while
revenues from other businesses increased by 40.68 per
the steel business, galvanised products were the best
performers with a growth of 45 per cent followed by construction
bars at 30 per cent. Cold rolled sheets achieved volume
growth of 29 per cent. Revenues from value added branded
products increased by 28 per cent.
Steel is planning to acquire the entire issued share capital
of Corus Group Plc, at a price of 455 pence per share
in cash valuing 100 per cent equity of Corus at around
Rs37,286 crore. The acquisition is proposed to be made
by Tata Steel UK., a wholly-owned indirect subsidiary
of Tata Steel. The proposed acquisition would be financed
through equity contribution of around $3.5 billion by
Tata Steel and the balance through non-recourse debt on
Tata Steel UK to be serviced through the cash flows of
Corus acquisition through the scheme of arrangements,
signed by Tata Steel and Corus, is subject to approval
of the High Court of Justice in England and Wales and
the shareholders of Corus. If Corus shareholders approve
the deal and no counter-bids emerge from rival steel companies,
the acquisition is expected to be completed by January