Corus dents Tata Steel results; H2 seen better

Tata Steel Ltd (TATASTL.BO : 540.1 +6.65) India's largest and the world's eighth-largest steel company by output on Thursday announced a consolidated net loss of Rs 2,719.80 crore for the second quarter ended September. On a positive note, the company said it anticipated a "trend reversal in profitability" in the second half of the financial year.

Earnings for the first half were hurt by the weak performance of European unit Corus, impacted by lower prices and a consequent fall in production. The company had posted a net profit of Rs 4,703.64 crore in the corresponding period last year. "This is a result that none of 38,000 people at Corus in Europe are proud of," said Tata Steel Europe MD & CEO Kirby Adams, referring to the latest results.

Tata Steel, which bought European steelmaker Corus in 2007, said consolidated net sales during the quarter declined 42.63% to Rs 25,269.82 crore, compared with Rs 44,050.07 crore in Q2 FY09. Corus' Teesside casting plant in the UK was a major drag on profitability, posting Rs 800 crore ($172.7 million) in losses in Q2, the company said.

The company's expectations of better H2 performance are based on improved demand in India, China and Brazil. Tata Steel also noted that consolidated gross profit margin in October was positive on the back of a demand recovery in Europe. Corus sold 1 million metric tonne more in Q2 this fiscal, compared with Q1. The unit, which provides more than two-thirds of Tata Steel's output, cut production from the year-earlier period after orders from global automakers and builders collapsed amid the global recession.

Tata Steel group CFO Koushik Chatterjee said, "October to March would see a trend reversal in profitability terms. In Q2, costs were lower by Rs 600 crore compared with the previous quarter." The company utilised two-thirds of its capacity in the September quarter, up from 53% in the first quarter of the year.

Tata Steel's shares on Thursday slipped 3.34% to close at Rs 543.45 on the BSE (^BSESN : 16024.77 -17.41), recovering from an intra-day low of Rs 529.15.

Tata Steel's consolidated net loss for the first six months ended September stood at Rs 4,958.33 crore, against a net profit of Rs 8,618.26 crore in H1 FY09. Net sales during the period also dipped 44.58% to Rs 48,450.33 crore, against Rs 87,424.59 crore in the same period last year.

Total consolidated costs fell to Rs 26,176.76 crore from Rs 37,100.80 crore last year due to lower prices of raw materials such as iron ore and coking coal, which have fallen sharply since the middle of 2008.

Tata Steel also had a higher restructuring cost of Rs 911.32 crore, compared with Rs 17.86 crore the previous year. In November, it issued $546.9 million in new convertible bonds that would have a longer tenor and reset their exchange into shares at a lower price, in exchange for $493 million in securities to reduce repayment costs.

Tata Steel had around $2.2 billion in cash as of September. Its net debt stood at $9.8 billion, while gross debt was $12.8 billion. "Our target is to reduce gross debt by $2 billion. Moreover, we do not have large material debt repayment for the next 12 months," added Chatterjee.