Home > Financial reports > Tata Steel Profit Increases by 72%

Tata Steel Profit Increases by 72%

May 26, 2011

“Tata Steel Ltd. Wednesday reported a 72% rise in quarterly consolidated net profit from a year earlier due to higher product prices and robust sales growth at its India business, as well as a one-time gain of $561 million on the sale of a plant in Teesside, U.K. The world’s seventh-largest steelmaker by volume said profit for the fourth quarter ended March 31 rose to $937 million, up from $546 million.

Consolidated sales rose 23% to $7.59 billion from $6.17 billion in the fourth quarter, but the earnings margin before interest, taxes, depreciation and amortization shrank to 13.9% from 19.4%. … The Indian operations posted sales of $1.87 billion, with the sales volume at 1.7 million tons. Comparative figures were not provided.

Looking ahead, chief financial officer Koushik Chatterjee said at a press conference that the company’s operations, especially those in Europe, will continue to face cost pressures from escalating raw materials prices, such as iron ore and coking coal. “

Source: Wall Street Journal, May 26 2011

Observations:

  • Europe is Tata’s biggest market, but the largest part of profits come from India, where the company achieved over $400/t EBITDA, compared to less than $100/t EBITDA in other regions. Overall EBITDA margin stands at 14%.
  • Tata expects increasing Indian government expenditure to stimulate the economy as a key driver for growth in the near future.

Implications:

  • The good news for Tata and other steelmakers is that the company has managed to offset the increasing raw materials cost by increasing the price of its products in emerging markets. Though higher steel prices could slow the growth of emerging economies (which China’s government is trying to do anyway), the increase in steel prices is important for steel makers in the region to escape the cost pressure from higher iron ore, coal, energy, and employment costs.
  • Tata is trying to find a new balance in its global operations. It announced a restructuring of its European long products division in order to make it profitable and sold its Teesside plant in the UK. The company tries to strengthen its position in India to benefit from the growth of the Asian market, but is at the same time struggling with the strong and hardly profitable presence in Europe’s mature market.

©2011 | Wilfred Visser | thebusinessofmining.com

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