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Tata Steel's FY09 annual report: A peek - I

Aug 21, 2009

Tata Steel, world's sixth largest steel maker recently came out with its FY09 annual report. We have studied the same and will put up a detailed analysis in a series of articles. Let us go through some of the important information therein. Tata Steel Chairman's message: The global financial crisis caused lack of liquidity in the market which resulted in drying up of consumer credit and working capital, significant fall in demand and consequently inability of companies to finance their operations. As a result a domino effect spiraled downward in various steel consuming industries like constructions, automobiles, capital goods and consumer products across the world. Hence, the demand for steel declined by around 26% in UK and Europe during the third quarter of FY09 as compared to last year. Further, during the fourth quarter, the steel demand declined by 57% in UK and 44% in Europe as compared to corresponding period last year. However, on the domestic side though the steel demand followed a global trend by showcasing a lower decline of 11% in third quarter, the same picked up during the fourth quarter as infrastructure and road building activity gained momentum in the domestic economy.

Tata Steel has taken major initiatives in cost reduction, process improvement and product rationalization in order to ride out the current challenging times. Furthermore, production rationalization has been undertaken at European and Asian operations in order to be in sync with market demand. It plans to go ahead with the expansion project at Jamshedpur and also scout for mines so as to ensure the raw material security for its European operations. All these measures are poised to make Tata Steel more cost effective steel manufacturer having a stronger global presence.

Management Discussion & Analysis: The operations of Tata Steel can be divided geographically viz Indian Operations, European operations and Southeast Asian operations.

Indian operations- It consists of mainly four divisions viz steel division, Ferroalloys and minerals division (FAMD), tubes division and bearings divisions. The operational performance of these divisions is mentioned in the below table.

Divisions FY08 FY09 Change
Steel (saleable)      
Production 4.86 5.37 11%
volumes 4.78 5.23 9%
Revenue 165,390 204,560 24%
Production 1.41 1.16 -18%
Volumes 1.14 0.87 -24%
Revenue 18,080 23,240 29%
Production 0.322 0.316 -2%
Volumes 0.323 0.318 -2%
Revenue 12,170 14,100 16%
Production 26.36 27.4 4%
Volumes 27.61 26.34 -5%
Revenue 1,270 1,270 0%
*Production and Volumes- m tonnes, Revenue- Rs m

The robust growth in the steel division can be attributed to higher realizations due to higher prices in first half and increased volumes in the second half of the fiscal. Similarly, sales of tubes and ferroalloys improved mainly due to higher realizations experienced during the year on account of increase in prices with lower volumes as compared to the last year.

European operations: Tata Steel Europe, erstwhile Corus, is the second largest steel producer in Europe and operates mainly in three divisions viz. Strip products, Long products and Distribution and Building systems. Liquid steel production declined by 20% YoY to 16 m tonnes in FY09, while sales volumes declined by 14% YoY to 20 m tonnes during the same period. The sharp fall in steel demand can be attributed to the steep downturn in the steel consumption during the second half of fiscal caused by the recessionary trend in the European markets.

Southeast Asian operations: NatSteel Holdings and Tata Steel Thailand are primarily the main subsidiaries operating in this region. NatSteel's Singapore and Chinese operations registered volumes growth of 6% and 17% in FY09 as compared to FY08, while Tata Steel Thailand registered a decline in steel volumes by 20% during the same period.

Margins and revenue subsidiaries breakup
  FY08 FY09 Change
Tata Steel India      
Revenues (Rs bn) 196.9 243.2 23%
operating margins 40.7% 37.6%  
Tata Steel Europe      
Revenues 1,002.2 1,095.7 9%
operating margins 8% 10%  
Revenues 76.6 134.7 76%
operating margins -2% 2%  
Tata Steel Thailand      
Revenues 40.8 39.7 -3%
operating margins 12% 10%  

In the next article, we will continue our discussion further on the company's raw material security, strategy, expansion projects etc.

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