Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
11,840.45-73.0
Stock Analysis, IPO, Mutual Funds, Bonds & More

Tata Steel rebound to take a while amid weak demand

The company’s Indian business remains the main business due to captive iron ore mines, it generates much more operating profit and cash flows than other businesses.

, ET Bureau|
Feb 08, 2016, 04.00 AM IST
0Comments
The company’s Indian business remains the main business due to captive iron ore mines, it generates much more operating profit and cash flows than other businesses.
The company’s Indian business remains the main business due to captive iron ore mines, it generates much more operating profit and cash flows than other businesses.
ET INTELLIGENCE GROUP: Tata Steel’s December quarter numbers reflect the challenging times the company is facing. Its operating profit per tonne for its Indian business was the lowest since FY03 and the operating loss per tonne for the Europe business was the highest in the last 15 quarters. After adjusting for onetime items, it reported a loss of Rs 140 crore on total sales of Rs 30,300 crore for the quarter.

The recent nod for the minimum import price for steel products from the government to protect the Indian steel industry from cheap imports may provide some relief but that does not guarantee a turnaround in the company’s business. Investors may do better to wait for the benefits to be reflected in its numbers. At present, the industry enjoys a high import duty (which will be replaced by the minimum import price), but that has not much helped the industry, including the largest steel company — Tata Steel.

Tata Steel rebound to take a while amid weak demandIn the December quarter, Indian business sales dropped 8.4% year-onyear and net profit fell 49%. This was because of low steel price per tonne realisation due to high imports mainly from China, Japan and Korea. The company’s Indian business remains the main business due to captive iron ore mines, it generates much more operating profit and cash flows than other businesses. According to the management, there has been some uptick in demand from the government but demand from the private sector continues to remain weak.

In Europe, although the sales were up 1% year-on-year, the loss widened due to low realisation and low margins. An appreciating UK currency also negatively impacted as it lowered competitiveness. It may be difficult to predict when the turnaround of this business will happen. While profits were at record lows, the debt was at a record high. The total debt increased by Rs 1,500 crore to Rs 75,000 crore. There is concern on how the management will manage to bring this down, given the current situation.

Valuation-wise, Tata Steel’s stock is trading at 0.7 times price to book and 13.6 times EV by EBIDTA. The stock has seen lower levels. On Friday, it opened 5% down due to weak results, but closed 3.4% higher than the previous close in anticipation of the MIP introduction on the steel industry. Existing investors may consider selling on rallies as a clear turnaround is sometime away.
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service