Tata Steel Q3FY17

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Financial Highlights

Tata Steel Q3FY17 Financial Performance
  • Consolidated deliveries increased by 8% Quarter on Quarter basis to 6.11 million tonne
  • Revenues was Rs 750 crores in Q2 & 850 crore in Q3
  • Group EBITDA margin was at 12.1%, higher by about 1.2%
  • European EBITDA improved from a loss of about Rs 760 crores in the last quarter to Rs 610 crores in the current year
  • Sequential drop in EBITDA with margins falling by 350 basis points due to higher spend on Netherlands.
  • Groups profit before exceptional items & taxes was higher at Rs 902 crores as compared to Rs 251 crores last year.
  • Other comprehensive income was Rs 289 crores on account of foreign currency translations.
  • Gross Debt & Net Debt was Rs 84,750 crores & Rs 76,680 crores respectively
  • About Rs 15,000 crores is in cash, undrawn credit lines, & current investment
  • Subsidiaries losses have risen to Rs 579 crores. That is mainly due to FX translation loss which was roughly about Rs 300 crores.
  • No material debt in next 12 months & hopefully MAT credit will continue.
Tata Steel Q3FY17 Business Performance

Key Management Updates

  • Mr. N. Chandrasekaran has been appointed as the Chairman of the Board of the Company
  • Mr. Jacques Schraven, an Independent Director has retired & in his place Dr. Peter Blauwhof, a oil & gas industry expert has joined

Business updates 

  • China’s decision to impose production restrictions, eliminate excess capacity, & impose curbs provided some relief to global steel prices. As more countries implement protectionist policy, exports from china continued to reduce though of course they are at high level
  • Steel demand in China showed a healthy growth in this quarter
  • Coking coal prices have reached $310 per tonne in November 2016
  • Iron ore prices reached $ 80 per tonne
  • Selling prices & HRC prices rose to about $ 550 per tonne
  • Acquired 100% stake in Brahmani River pellets company.
  • Expected Capex would be around Rs 9,500 crores & have incurred Rs 5,600 till date 

Tata Steel India and South-East Asia

  • Steel demand in India grew by a mere 3% year on year & declined 2% sequentially. Steel production in India grew in double digits & favorable international prices drove exports higher in India which turned India into net exporter in Q3
  • India became net exporter of steel in Q3 & key countries it is exporting to are Southeast Asia, Middle east, Europe.
  • Tata steel India deliveries grew about 27% over corresponding quarter of last year & up 14% sequentially, significantly better than the boarder market.
  • Sales to Automotive industry increased by 20%, as company continues to partner with auto customers in their drive towards localization, & new model launches.
  • Branded sales increased by 13%& sales to Projects & exports segment grew by 47%
  • Average realization increased by over Rs 3,500 per tonne & there was some impact of rising coking coal & iron ore prices, 
  • Posted strong EBITDA growth on back of higher net realization, & the ramp up impact of the Kalinganagar plant
  • Ferro Alloys Division did well & contributed to over all profitability.
  • Guidance
    • Volume guidance increased last year from 1 milion tonnes to 1.3 mn tonnes & now it is revised to 1.5 mn tonnes
    • Guidance for Jamshedpur is reduced by 100,000 tonnes
  • Reduced imports from China & increasing spreads helped double EBITDA from previous quarter. Nat Steel in particular posted strong results. 
  • The production in crude steel for this quarter is around 200000 tonnes a month. The fully ramped up volume would be 250000 tonnes a month.
  • December Quarter deliveries were 570000 tonnes
  • Sharp recovery in steel prices in Q3 Rs 3,500 more than Q2, & for Q4 Rs 3,000
  • The Capacity built up in KPO is strategic & attractive part of growth because 3 million tonne expansion has been done 
  • Peak profitability will depend on steel price & steel prices are no where near what have seen for 10 years. It is still 500 odd level. 
  • As Kalinganagar ramps up the company continues to see the benefit of distributing the fixed cost over a larger volume. Some benefits are seen continue as some of facilities which don’t add up to volume add to cost efficiencies. But on the flip side most of the coal from Kalinganagar comes from outside, it is not captive coal, so impact of coal prices will be felt more in kalinganagar than in Jamshedpur. 
  • Capital intensity on a per tonne basis will be lower as company has already spent Rs 25000 crore for building greenfield site & most of the enabling facilities have already been created.
  • The realization is more due to sale of scrap & lot of pooled iron scrap, the company has no inventory gains
  • Landed cost in India was about $130 per tonne in Q2 & for Q3 it increased by about $ 75 per tonne
  • Company expects in Q4 another $40-50 per tonne may increase
  • Increase pressure from Chinese market for dumping & company is talking to government to switch to MIP which can give some comfort. Government has launched anti dumping investigations & actions are being taken. 
  • HRC prices were up around Rs 3500 & the trend in the long products is that it started picking up in November/December. Longs compared to previous quarter was about roughly Rs 2000 higher
  • The company is seeing cost reduction of Rs 5000 per tonne as production gets full ramped up
  • EC clearance has come in. It will help in debottlenecking the existing facilities. The company is already producing hot metal at the rate of 12 million tonnes, & if all that is actually consumed the company can produce more steel. The original approval was 9.7 million tonnes & the company expects 11 million tonnes
  • Demand for long product had seen some improvement after demonetization fall
  • Earlier till 2015 January steel duties were 5-7% & steel companies were not complaining but chinese started selling steel at half the rate, so government put up a MIP which arrested the flood of imports. Now the imports stabilized at 5-6 million tonne
  • Annualized exports from company is 10 million tonnes, 

Ferro Alloys Division

  • Operating profit was Rs 319 crores as compared to Rs 175 crores the previous quarter
  • Revenues was Rs 750 crores in Q2 & 850 crore in Q3
  • Sukinda mines are till 2020, the company is already monetizing it in some sense because the company is largest player now in the Indian market. The company is signed up with many people who have capabilities in furnaces, & are converting it to ferrochrome & other products. This is the reason why volumes & profitability have gone up.

Tata Steel Europe

  • European steel demand expected to grew about 2.2% in 2016 but domestic deliveries held steady in first 9 months due to rising imports.
  • Growth of European steel using sectors remain mixed. Lack of investment in EU has been a drag on both the construction & machinery sectors but increased consumer spending continues to support growth in automotive.
  • European steel production was 2.68 mn tonnes for Q3 slightly lower than last quarter. There was a decrease of 4% corresponding to the last year
  • Deliveries were 3% lower & turnover 10% higher than previous quarter
  • Despite Q3 deliveries being 13% lower than last year, company’s turnover was 10% higher than last quarter
  • EBITDA in Q3 was positive GBP 74 million, GBP 42 million lower than the previous quarter due to higher raw material & energy costs
  • EBITDA in Q3 was better than the loss recorded the previous year due to partly better market conditions & the weakness of the pound relative to Euro.
  • Launched 6 new products in Q3 including a new faster to install insulated building panel, product used in lighting & ceiling components made from our innovative MagicZinc coated steels & an extension to a range of coated automotive steels which reduce costs for consumers
  • Sales of differentiated products were 13% higher & their value add almost 30% higher than a year ago with strong sales in the automotive & construction sectors.
  • Sudden decline in Y-o-Y deliveries was because last year the company was comparing 9 months to 9 months, there was also restructuring done, & Port Talbot was doing about 4.5 million tonnes is now doing 3.4 million tonnes. The company has discontinued bar operations. 
  • The January to June quarter are stronger for the company. For European number the July to September have been lower. This is the time in the quarter where company has shutdowns, maintenance cost is higher. Due to these reason the quarter July to December is lower.
  • Depreciation of pound & other trade related impacts have had positive impact 
  • BSPS pension scheme is under discussion where the company is trying to resolve the UK pension issue. There are multiple stakeholders involved. The scheme is well funded the company is not expecting any extra payout as it is under discussion with trustees & regulators
  • The balloting process is going on so the company is not in position to give any time frame for clearance process
  • The process works is such a way that first agreement with unions, & then with trustees on various issues & then with the pensioners
  • The pension regulator TPR has got the final say in this process & there are other regulatory bodies like Pension protection fund, etc
  • Automotive annual contracts in Europe was repriced by EUR 200 upwards, & negotiations have been going on & they are starting this January
  • For Europe the purchase coal is around $155 per tonne in Q3 & the consumptions were more around $89 per tonne 
  • For Q4 it will increase & $ 89 might go to $ 200
  • Tata steel Europe production gets peaked at 10 million to 10.5 million tonnes

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