X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Tata Steel: Slips into losses - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Tata Steel: Slips into losses
May 22, 2015

Tata Steel has announced its March quarter (4QFY15) results. On a consolidated basis topline falls 20.7% YoY in 4QFY15. Due to exceptional losses of Rs 48.1 bn, the company reported a loss of Rs 56.7 bn during the quarter. Here is our analysis of the results.

Performance summary
  • Consolidated topline declines by 20.7% YoY and 6.1% YoY in 4QFY15 and FY15 respectively. On a consolidated basis steel deliveries stood at 7.06 million tons (MT) and 26.32 MT in 4QFY15 and FY15 respectively.
  • Consolidated operating profit was down by 69.2% YoY, while the operating margins succumbed to 4.6% during 4QFY15. The India operations were impacted due to steep fall in realizations coupled with increase in iron ore costs. The South East Asian operations reported a loss at the EBITDA level (both in 4QFY15 and FY15) due to one-off provisions. However, European operations reported decent operating performance due to improved margins and better market positioning.
  • On a consolidated basis, the company reported a loss of Rs 56.7 bn compared to a profit of Rs 10.3 bn in 4QFY14. Poor performance at the operating level and an impairment loss of Rs 48 bn impacted profits in the quarter.
  • The company incurred Rs 36.3 bn towards capex in 4QFY15. For FY15, capex spend stood at Rs 134.9 bn. The company monetized non-core assets worth Rs 29 bn in FY15.
  • The board has recommended a dividend of Rs 8 per share for FY15. The consolidated D/E stood at 2.2x at the end of the year.

Consolidated Financial Performance
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 424,281 336,662 -20.7% 1,486,136 1,395,037 -6.1%
Expenditure 374,170 321,232 -14.1% 1,322,025 1,269,680 -4.0%
Operating profit (EBITDA) 50,111 15,430 -69.2% 164,110 125,358 -23.6%
EBDITA margin (%) 11.8% 4.6%   11.0% 9.0%  
Other income 1,117 1,394 24.8% 5,168 7,962 54.1%
Interest (net) 11,694 11,952 2.2% 43,368 48,478 11.8%
Depreciation 14,719 15,127 2.8% 58,412 59,436 1.8%
Profit before tax 24,816 (10,255) NA 67,498 25,406 -62.4%
Extraordinary income/(expense) (458) (48,112) NA (276) (39,287) NA
Tax 13,645 (1,345) NA 30,582 25,674 -16.0%
Profit after tax/(loss) 10,712 (57,023) NA 36,640 (39,555) NA
Minority interest (381) 154 NA (699) 133 NA
Share of profit of associates 28 126 352.9% 8 167 1886.9%
PAT after minority and sh. of assoc. profit 10,359 (56,743) NA 35,949 (39,255) NA
Net profit margin (%) 2.4% -16.9%   2.4% -2.8%  
No. of shares (m)         971  
Basic & Diluted earnings per share (Rs)         (40.4)  
Price to earnings ratio (x)*         NM  
*trailing twelve month earnings

What has driven performance in 4QFY15?
  • The steel volumes and production figures of India operations stood at 2.41 MT and 2.39 MT in 4QFY15. Revenues from the India operations were flat in FY15 as volume growth was offset by drop in realizations. Revenues from the European operations declined 5.7% YoY in FY15 due to fall in realizations. Revenues from the South East Asian operations also declined 23.2% YoY in FY15 due to weak demand and increase in imports from China.

  • The EBITDA declined 69.2% YoY on a consolidated basis with margins succumbing to 4.6% from 11.8% in 4QFY14. The group EBITDA per ton declined 21.5% YoY to Rs 4,843 per ton in FY15. The EBITDA per ton from the Indian and European operations stood at Rs 11,546 and Rs 3,135 during the year.

  • Tata Steel reported a loss of Rs 56.7 bn in 4QFY15 as compared to a profit of Rs 10.3 bn in 4QFY14. Poor performance at the operating level and exceptional losses of Rs 48.1 bn mainly pertaining to impairment of assets impacted net profits. However, even after adjusting for these exceptional losses, the company's bottom-line languished in red with losses of Rs 8.6 bn in 4QFY15 indicating that slowdown woes have impacted profitability during the quarter.
What to expect?
The current quarter performance was impacted by non-cash write down relating to impairment of assets. However, even after adjusting for exceptional losses the performance of Tata Steel during the quarter was below par. The India operations suffered due to fall in realizations and increase in iron ore costs. Even the European and South East Asian operations were impacted due to weak demand and subsequent fall in realizations. Excess capacity in China has led to oversupply in global markets.

As far as the steel demand in India is concerned, even that has been stagnant over the last 3-4 years hovering between 71-76MT a year. Further, strong rupee has hurt exports and made imports cheap further benefiting cheap Chinese producers. Thus, the overall situation appears to be challenging unless the capex cycle turns soon and investment in infrastructure and associated sectors pick up.

In light of the announcement of FY15 results, we are likely to roll forward our estimates to FY18 and come out with a revised target price soon.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any financial interest in the subject company.
  2. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  3. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TATA STEEL SHARE PRICE


Dec 12, 2017 (Close)

TRACK TATA STEEL

  • Track your investment in TATA STEEL with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

TATA STEEL 8-QTR ANALYSIS

COMPARE TATA STEEL WITH

MARKET STATS