Tata Steel: A Strong Quarter

Tata Steel declared its results for the first quarter of financial year 2018 (1QFY18). The company has reported a 19.2% increase in the topline while the bottomline turned positive in 1QFY18. Here is our analysis of the results.

Performance summary:

• Total Income from operations increased by 19.2% YoY. This is due to strong volume growth and the supportive pricing environment. At a consolidated level, total deliveries increased by 8.6%, whereas realisation increased by 9.9% YoY.
• Indian market performed considerably well with volume growing by 27.9% YoY largely due to the ramp up of Kalinganagar facility. Realisation increased by 9.2% YoY. Automotive growth regained post demonetization. Branded products and Retail sales grew by 19% YoY and now comprise 48% of total sales.
• Revenue for South East Asia operations declined by 1.2% YoY. This is on the back a decline in volumes which fell by 7.7% YoY. Volumes declined due to weak market conditions. Realisation, on the other hand, increased by 7% YoY.
• Europe operation performance was satisfactory, although steel production declined on YoY basis.
• Tata Steel Europe saw a reduction in deliveries during the quarter following higher deliveries in the seasonally strong 4QFY17. Realisation saw an increase of 15.3% YoY reflecting the improved market conditions and increased sales of differentiated products.
• Operating profit increased by 51.9% YoY and operating margin stood at 16.8%. EBITDA from Indian operations increased by 30.7% YoY. This is due to supportive realisations, strong growth in deliveries and ramp-up of Kalinganagar plant. The company saw strong growth in branded products, retail and solutions segment which increased 19% YoY.
• European operations registered a good set of numbers. EBITDA increased by 63% YoY on the back of and currency conditions as well as ongoing improvement programmes.
• Other income increased by 14% YoY. Depreciation and finance cost increased by 21.3% YoY and 25.5% YoY respectively.
• Exceptional items rose to Rs 6.16 billion, mainly due to provision for mining related litigation.
• The company registered a net profit of Rs 9.2 billion after considering the loss from discounted operation.
  
  

  Consolidated Financial Performance

  (Rs m)	1QFY17	1QFY18	Change
  Total Income	247,944	295,568	19.2%
  Total Expenses	215,190	245,828	14.2%
  Operating profit (EBITDA)	32,754	49,740	51.9%
  Operating profit margin (%)	13.2%	16.8%
  Other income	1364	1555	14.0%
  Interest	10707	13437	25.5%
  Depreciation	12378	15011	21.3%
  Profit before tax & exceptional items	11,033	22,846	107.1%
  Exceptional Item	-1,678	-6,168
  Tax	7,403	7,405	0.0%
  Loss from Discontinued Operations	-33,925	-121
  Share of profit / (loss) of associates	142	59	-58.5%
  Net Profit	-31,831	9,211
  Net profit margin (%)	-12.8%	3.1%
  No. of shares (m)		971
  Basic diluted earnings per share (Rs) ^		-0.5
  P/E ratio (x) *		N.A

  (^annualised, * on trailing twelve month earnings)