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Tata Steel: Loss from Discontinued Business Mars Performance - Views on News from Equitymaster
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  • Sep 27, 2016 - Tata Steel: Loss from Discontinued Business Mars Performance

Tata Steel: Loss from Discontinued Business Mars Performance
Sep 27, 2016

Tata Steel has announced its first quarter results of financial year 2016-2017 (1QFY17). The company has reported a 6.3% decline in the topline while the bottomline was in red in 1QFY17.

Performance summary:
  • Total Income from operations declined by 6.3% YoY. This is on the back of a decline in volumes from European and South East Asia. The volumes from these region have declined by 11.8% YoY and 5.8% YoY respectively. However, blended realisations improved marginally during the quarter by 1.4%. This improvement came from India Region on the back of relatively better operating environment owing to protectionist measures resulting in better prices and reduced import pressure.
  • Operating profit increased by 20.8% YoY and operating margin stood at 12.8% which has increased by 2.8% during 1QFY17. Standalone EBITDA grew 20% YoY aided by benefits of lower operating cost. Average realisation was higher due to focus on value-added sales.
  • EBITDA of European operations grew 2.6x during 1QFY17. This is on the back of an increase in value-added products particularly to auto segment and higher cost efficiencies. South East Asian operations derived benefits from much better rebar-scrap spread and EBITDA was up ~ 6x YoY.
  • Other income increased by whopping 120.7% YoY on the back of higher interest income. Depreciation and finance cost declined by 7.1% YoY and 6.6% YoY respectively.
  • Exceptional items primarily relate to write down of assets in Tata Steel Mineral Canada, pension curtailment provisions in Europe, ESS provisions and impairments in UK strips business.
  • During the quarter, Tata Steel Europe discontinued the operations of its long products business and on May 31, 2016, completed its sale to Greybull Capital LLP. Loss on disposal amounting to Rs 32.9 billion has been included in financial statement as loss from discontinued operations. Due to this, the bottomline was in red during the quarter and the company registered a net loss of Rs 31.8 billion in FY16.

    Consolidated Financial Performance
    (Rs m) 1QFY16 1QFY17 Change
    Total Income 269,378 252,298 -6.3%
    Total Expenses 242,551 219,878 -9.3%
    Operating profit (EBITDA) 26,828 32,420 20.8%
    Operating profit margin (%) 10.0% 12.8%
    Other income 620 1367 120.7%
    Interest 11470 10707 -6.6%
    Depreciation 13371 12417 -7.1%
    Profit before tax & exceptional items 2,607 10,662
    Exceptional Item -1,446 -1,678
    Tax 1,007 7,405 635.6%
    Loss from Discontinued Operations -3,386 -33,553
    Share of profit / (loss) of associates 63 142 126.1%
    Net Profit -3,169 -31,831
    Net profit margin (%) -1.2% -12.6%
    No. of shares (m) 971
    Basic diluted earnings per share (Rs) ^ -72.0
    P/E ratio (x) * N.A

    (^annualised, * on trailing twelve month earnings)

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