Last Updated : 28 October 2009 at 20:00 IST

Tata Steel’s profit falls by 49%

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MUMBAI (Commodity Online): Dip in steel prices continued to weigh high on Tata Steel’s profitability for the second consecutive quarter. However, steel demand in India continued to remain strong and the 20% y-o-y growth in Tata Steel’s sales volume confirmed it.

Tata Steel’s sales realization became two-third from what it was last year and this reduced the quarterly revenue by one-fifth.

The company’s standalone net profit, which excludes earnings from the European unit Corus, dropped 49% to Rs 903 crore in the quarter ended 30 September from Rs 1,788 crore in the year-ago period. Revenue declined 16% to Rs 5,692 crore.

According to a press note, though the company did well to reduce its operating expenses, its adjusted net profit got almost halved. Moreover, Rs 903 crore of net profit came slightly below average analyst expectation and the stock of Tata Steel declined 7.3% compared to 5.6% fall in BSE Metal Index.

The impact of a decline in sales realization is such that in its absence the company would have reported an almost 40% rise in its quarterly operating profit. The result could have been worse had the company not taken measures to improve its operational efficiencies.

In the September 2009 quarter, its operating cost per tonne of steel sold works out to Rs 25,500, which is one-sixth lower from what it was a year ago. The improvement in operating parameters was clearly visible in the quarterly result. The operating margin for September 2009 quarter expanded by almost 400 basis points sequentially — the realization remained flat though.

But the large amount of debt and little cash on its balance sheet are proving costly for the company. Its other income is only one-third whereas the interest cost is more than half from what it was a year-ago. And the impact of these is no less significant. For instance, if the company had same level of other income and interest cost as the past year, its September 2009 quarterly net profit would have increased at least by Rs 300 crore, one-third higher than is reported.