Tata Steel Q2 Net up 22%; takes Rs 8,699 crore hit on UK biz

New Delhi: Tata Steel on Thursday reported a 22 percent rise in consolidated net profit at Rs 1,528.71 crore in the September quarter aided by better sales in the auto and value added products category as well as sale of investments.

The Mumbai-based steelmaker had clocked a net profit of Rs 1,254.33 crore in the year-ago period.

Its consolidated total income, however, fell 18 percent to Rs 29,304.69 crore in the July-September quarter this fiscal from Rs 35,777.11 crore in the same quarter of 2014-15, Tata Steel said in a BSE filing.

While, the company's Indian operations reported strong growth in production and deliveries in the September quarter, its European operations, particularly in the UK, significantly worsened as Britain continues to witness surge in imports and decline in competitiveness.

Tata Steel India and South East Asia Managing Director T V Narendran said: "Despite ongoing downturn in global commodity prices and seasonal weakness in demand, we were able to increase our deliveries by 9 percent during the quarter on the back of strong sales to the auto sector and a higher proportion of value added products."

The underlying EBIDTA for the second quarter of 2015-16 increased by 14 percent to Rs 1,963 crore. Reported EBITDA for the quarter rose to Rs 4,771 crore, including a gain of Rs 2,808 crore on the sale of quoted investments, the firm said in a statement.

Tata Steel Europe MD & CEO Karl-Ulrich Kohler said: "Our operating result has turned negative this year, reflecting the huge challenges the global steel industry is facing. In the UK these issues have been compounded by unhelpful exchange rates and regulatory costs that are destroying competitiveness."

Tata Steel in the UK is facing a structurally challenging environment of weak domestic manufacturing demand, surging imports, a strong pound and steep regulatory and business costs, it said.

Given the rapid and sharp deterioration in the underlying buisness environment in the UK, Tata Steel UK, an indirect subsidiary of Tata Steel has taken a non-cash impairment charge of the Strip and other businesses in the UK, it said.

The impact of the above along with restructuring charges and other provisions of the UK business has been reflected in the consolidated financial statements of the company to the extent of Rs 8,669 crore, it added.

The triennial valuation process of British Steel Pension Scheme has been completed. The consequential treatment of the same has been incorporated in the consolidated financial statements of the firm as a one time credit of Rs 8,570 crore during the September quarter.

Shares of Tata Steel today fell by 4.33 percent to settle at Rs 225.60 apiece at the BSE. The results were announced after market hours.

The firm's South East Asian operations continued to witness drop in rebar-scrap spreads and intense pricing pressure on back of imports from China.

However, the renewed focus on cost saving initiatives, new markets, downstream sales and exports, led to improved profitability.

Tata Steel has also decided to "restructure its Chinese operations in Xiamen and consequently have taken a charge of Rs 158 crore during this quarter," it said.

In India, the domestic realisations continued to witness increasing pressure. Subdued manufacturing activity in the country adversely affected the underlying domestic steel demand which decreased by 5 percent over the previous quarter.

Further the relatively strong currency exacerbated the problem. India continued to see strong imports from China and other FTA countries like Japan and Korea with net imports rising by over 100 percent over corresponding period last year.

Towards end September, government raised tariff barriers but the subsequent slide in steel prices has negated the impact of the same. The overall demand of material intensity sectors in the economy remained muted, it said.

It is expected that the policy reforms undertaken by the Government will manifest gradually in the underlying domestic steel demand over the next two years, Tata Steel said.

Market conditions in Europe, primarily in the UK worsened significantly in the September quarter as UK continues to witness surge in imports and declining competitiveness due to weak industrial demand, strengthening of sterling and adverse regulatory and business conditions.

In response to the market and business conditions in the UK, the company continues to restructure its UK business and has recently announced the closure of some of the sites in the UK.

During the quarter under review, Tata Steel UK has taken significant impairment charges in the UK Strip business.

Tata Steel India's stand alone financial results includes provision/charge of Rs 1,322 crore, which included demand and claims by state governments of Rs 880 crore.

It also includes provision for employee separation of 800 people of the Indian operations amounting to Rs 293 crore and impairment of assets of around Rs 125 crore of relating to the expenses incurred for the proposed Chattisgarh project and closure of Malda manganese mines.

The consolidated financial statements also include impairment and restructuring provisions of Rs 302 crore in South Africa and China, Tata Steel said.