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Tata Steel: Conference call extracts - Views on News from Equitymaster
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Tata Steel: Conference call extracts
Dec 8, 2008

We recently attended the 1HFY09 results conference call of Tata Steel. Here are the excerpts of the same. 1HFY09 performance: The consolidated topline of the company grew by 38% YoY backed by better product mix and better realizations. The total steel sales volumes stood at around 16.5 m tonnes for the first half of the year. Operating profits growth stood higher than the topline at 61%YoY, enabling operating margins to expand by 250 bps to 17.4%. The bottomline (excl. minority interest) grew by 121% YoY mainly on account of decrease in interest outgo and lower tax charges. It may be noted that the accounting policy had been changed with the actuarial gains and losses on funds of employee benefits of Tata Steel UK being accounted in reserve and surplus in the consolidated balance sheet. Had it been routed through the P&L account, profit for the half year would have been lower by Rs 43.9 bn.

Capex: The company has spent nearly Rs10 bn in the first half of the year and plans to spend the same during the next half of the year. The company has estimated a capex of around Rs 30 bn for FY10. Tata Steel will continue with its expansion program at the Jamshedpur plant, that will result into total capacity of 10 MTPA. The first phase of greenfield project at Orissa of 3 MTPA will also be persisted with, hoping to complete the same by 2010. However, the company has deferred its two greenfield projects in Jharkhand and Chattisgarh.

Debt position: The net debt of the company stands at around US$ 9.2 bn out of which the Tata Steel standalone debt is only US$ 3.4 bn while Corus accounts for remaining US$ 5.1 bn. The standalone debt consists of mostly unsecured loans with a fixed interest cost of around 8% p.a. The complete debt on the balance sheet of the company is term debt and has an average maturity period of 5 years.

Response to financial crisis: The company has devised a program in order to counter the ongoing financial crisis that has led to sluggish demand for steel products across the world. On the Indian operations front, the company does not plan any production cut and expects to produce and sell as per its original plan. It expects higher production and sales in 2HFY09 at its Indian operations. In the Southeast Asian region, the company has planned to cut production by 25% at Tata Steel Thailand and at Nat steel, production cut will take place only in selected geographies. At Corus UK, the company has plans to cut down the production by around 30% for thesecond half of FY09.

Future projections: The company foresees a moderate slowdown in demand for steel in India and expects it to grow between 5% - 7% in FY09 and FY10. However, the company expects its sales to remain robust in the domestic market as its products not only enjoy a premium but India still remains a net importer of steel. In the European markets, the company expects the demand to remain subdued for the medium term and hence, is focusing on introduction of niche products in the markets and cost reduction in order to improve profitability.

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