Elation or deflation? Tata announces a costly profit

Elation or deflation? Tata announces a costly profit

Tata Steel announced net profits of Rs503 crore (US$81 million), but the good news was dampened by the bad.


While profits were attributed to better operational performances in both India and Europe, higher taxes and raw material costs tarnished the steel company's good news and its shares declined despite a recovery in demand in Europe.


The company acknowledged that market conditions were challenging. However, for the same period last year (Q3 2012) Tata Steel posted a Rs763 crore (Rs7.63 billion) net loss after a Rs914 crore (Rs9.14 billion rupees) net profit the previous quarter (Q2 2013).


Tata shares fell on Tuesday (11th Feb) by 3.2% to Rs377.30 and the company's tax bill soared 57% from Rs5.69 billion last year to Rs8.95 billion. Raw materials were up 19% and total costs rose by 9.3%. The average value of the rupee declined by 13%.


Group EBITDA was up 74% to Rs39.21 and Tata Steel Europe's figure stood at £87 million compared to a £50 million loss last year.


Where European alloy demand is concerned,  things appear to be 'on the up' for Tata Steel. Last year the company shed jobs in the UK and relied upon coking coal and iron ore from its own mines as demand for alloy in Europe dipped.


Tata Steel is hoping that the challenging conditions faced in Q3 will improve for Q4. "We are hopeful," said TV Narendran, managing director of Tata's India and South East Asian operations.


The key message from global steelmakers is that things are improving with a number of big producers forecasting a rise in demand and profit increases.


Brussels-based worldsteel anticipates steel demand will grow 3.3% in 2014.