Tata Steel profit plunges 92% on weak demand

Tata Steel, the world’s 6th-largest steel producer, declared its results on Thursday, 10th November, 2011. The consolidated net sale of the company was up by 15% on a YoY basis. The growth in the sales was on the back of a 0.83% improvement in the overall sales volume of the company, and considering the grim scenario in the European region, the performance was good.

However, the operating performance of the company remained subdued, and was down by 34%. This was largely on account of higher raw material, power/fuel and freight charges, which were up by 15%, 18.5% and 14.8% respectively. 

The domestic performance of the company remained much better than its overseas operations. The standalone net sales grew by 15%, though the EBITDA margin was down by 9% as compared to the consolidated margin, which was down by 34%. The company 's Managing Director, Mr H.M. Nerurkar said that continued interest rate hikes impacted steel demand growth, but the company sequentially increased its sales volumes due to enhanced market reach and customer focus. 

The major hit was on the bottomline of the company, which declined by 92%. This was largely because of the higher 'Other Income'  component, which was down by 85%. Some of the impact was due to forex losses.  

We believe that Tata Steel's outlook in the next 6 months will remain grim, especially with regard to the European region, where it generates 52% of its revenue, but which itself is still finding a way to emerge from the debt crisis. After continues rate hikes by the RBI, this seems to be the case in India as well, and we believe that the forthcoming 6 months in India will remain challenging on the demand side.

The stock closed at Rs 430, and was down up 4.19% after the results announcement. So far, it has touched a high of Rs 433.80 and a low of Rs 423.60 in today’s trade.