Adoption of new corporate tax regime aided Tata Steel's consolidated net profit in the second quarter, which increased 6% on a year-on-year basis to Rs 3,302 crore. However, challenging operating environment, weak liquidity conditions and demand impacted the operational performance significantly.
During the quarter, the firm had a favourable tax impact of Rs 4,233 crore, of which Rs 2,425 crore was on adoption of the new corporate tax rate by Tata Steel standalone and some subsidiaries in India and Rs 1,808 crore was on account of recognition/reversal of deferred tax assets and liabilities in offshore subsidiaries.
Tata Steel reported a loss of Rs 6.54 crore before tax on a consolidated level versus a profit before tax of Rs 5,411 crore in the quarter ended September 2018. The company's weak performance was on account of lower realisations during the quarter, down by Rs 4,000 per tonne sequentially. However, the production and deliveries largely held up during the quarter. Production stood at 6.95 million tonne on a consolidated basis versus 6.73 million tonnes last year, while deliveries came in at 6.53 million tonne against 6.80 million tonne last year.
Consequently, net sales in Q2 FY20 declined 15.4% y-o-y to Rs 34,579 crore. Analysts' consensus estimates were of Rs 34,476.36 crore. The consolidated adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) also halved to Rs 4,018 crore, much below analyst expectations. Consequently, the consolidated Ebitda margins fell by a hefty 210 basis points to 18.9%.
The company's Ebitda per tonne on a consolidated basis stood at Rs 9,238. Tata Steel's India operations Ebitda per tonne declined sharply to Rs 11,200 versus a record Rs 19,244, in the corresponding quarter last year. India steel deliveries stood at 4.13 million tonne in Q2 FY20, down from 4.32 million tonne in Q2 FY19. However, the company said that despite the slowdown, the company was able to successfully maintain its sales volumes in branded products & retail segment and industrial product & projects segment. The sharp slowdown in the automotive sector, particularly in the commercial vehicle segment, was offset by higher exports.
Executive director for finance and corporate Koushik Chatterjee observed that Tata Steel's performance came amidst a challenging economic environment which saw steel prices drop by over $100/tonne. The company had revised its capital expenditure (capex) guidance for FY20 in the first quarter of the financial year from Rs 11,000 crore to Rs 8,300 crore. Chatterjee said that the company could go in for recalibration of the capex further. "Capex during the quarter stood at Rs 2,325 crore and half year stands at Rs 4,985 crore. Capex numbers will see a sharper reduction in the coming quarters as we recalibrate and re-prioritise our capital expenditure in line with market conditions".
Tata Steel's gross debt during the quarter increased by Rs 4,900 crore to Rs 1.11 lakh crore at the end of September. Chatterjee said that slowdown in demand also had an impact on the working capital of the company, which was on the account of sharp drop in realisations and operating cash flows. However, post-September, the company has repaid €370 million of debt, which will reduce the company's debt by Rs 2,900 crore. Net debt was higher at over Rs 1.06 lakh crore.
"During the quarter, we tied up $525 million of foreign currency loans which will help lengthen our debt maturity profile. Our liquidity position continues to be strong with cash balance of Rs 4,596 crore and unutilised bank lines of Rs 7,262 crore."
On company's deleveraging plans Chatterjee said that against the earlier plan of reducing the leverage by around a billion dollars by March 2020, the company has so far repaid €370 million and a similar tranche could happen by January-February, but will miss the March target.
T V Narendran, managing director, Tata Steel, said, "The business environment in India and other geographies continued to be challenging and weighed heavily on steel prices. We hope the end of monsoon season and the onset of festive demand leads to a pick-up in overall consumption and the steel demand."