New income doubles from year-ago period.
By R. Chandrasekaran
CHENNAI: India’s biggest business conglomerate, Tata Group’s Tata Steel delivered better than expected results for the first quarter thanks to improved performance from its European operations and better control over costs.
The news that Euro Zone will come out of recession should also be a big boost to the company and investors, who were not happy with the acquisition of Corus a few years ago.
The company’s net income more than doubled to Rs.11.39 billion from Rs.5.98 billion in the year-ago quarter. However, its net sales slipped 3 per cent to Rs.328.05 billion as a result of lower prices in the June quarter.
The big jump in profit is attributed to a lower tax incidence. Its profit before tax and extraordinary items grew only 4.3 percent over the last year quarter but dropped 19.6 percent from the preceding quarter.
Significantly, its operating margin rose 1.2 percentage points to 11.2 percent over the previous year quarter though it witnessed a 1.4 percentage points downside from the fourth quarter. The sequential drop is due to weak market prices.
Tata Steel’s Europe operations sales fell 3.8 percent from the fourth quarter as a fall out of lower volume of sales. However its profitability improved due to improved price realizations driven by a better product mix apart from a favorable combination of contracts, be it quarterly or annually.
The company generates two-thirds of its 27 million ton annual capacity from Europe. Therefore, its performance is crucial for the company. The company’s chairman Cyrus Mistry had, in June, indicated the challenges ahead for the company in the next two years on account of weak demand and volatile raw material prices in key markets.
Its Indian operations revenue fell 12.2 percent sequentially. However, its sales advanced 6.1 percent on year-on-year basis. Its operating profit rose modestly by 2 percent, thus indicating the pressures on margins.
However, consolidated revenue witnessed 3% drop over the last year quarter; but operating profit grew 8.4% as a result of improved performance from the European unit.
The company also sees recovery in demand during the end of the current year in Europe. Only in May, Tata Steel had written down $1.6 billion and the latest quarter results provided solace to investors.
To contact the author, email to rchandrasekaran@americanbazaaronline.com