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Tata Steel has taken an impairment charge of Rs 8,356 crore in the fourth quarter of FY13 in its consolidated accounts.
This loss for the devaluation or impairment charge for various tangible and intangible assets of the group has caused the company to report a consolidated net loss to Rs 6,528.51 crore for the quarter to March 31, 2013.
Tata Steel had made a net consolidated profit of Rs 433.46 crore in Q4 FY12.
For the whole-year, the net consolidated loss stood at Rs 7,057.62 crore against a net profit of Rs 5,389.77 crore in FY12.
“A significant portion of this impairment charge relates partly to the goodwill created on the acquisition of Corus Group plc in 2007, and partly to the assets of the business units that have been adversely affected by the severe contraction in demand, especially in the construction sector.
“The balance impairment relates to the assets of Tata Steel KZN in South Africa, Tata Steel Thailand and Tata Metaliks for Redi Plant,” Tata Steel stated.
According to accounting experts, this is a one-time writing down of book value of the group’s assets – intangible (goodwill) and tangible (non-operating or operating with less than usual cash flow generation possibility) assets.
“The effect of this combined asset devaluation is to be felt in the balance sheet as well as in the profit and loss account as a loss,” explained the accounting services head of a global consultancy firm.
The non-cash charge, Tata Steel said, did “not affect any of its financial covenants and its funding position”.
Depressed conditions
The group, consisting of Tata Steel’s Indian, European, South African and South East Asian operations, has taken the impairment charge apprehending continuation of severely depressed conditions in Europe over the short-to-medium term.
A fall in European steel demand “led to a downward revision of cashflow expectations and the valuation of the Group’s European operations,” it said.
In a note to the accounts, Tata Steel said written down assets primarily relates to European (goodwill – Rs 4,751.40 crore and other assets – Rs 3,604.51 core).
In FY13, the company’s European operations recorded a 6.8 per cent drop in deliveries from that of FY12. The turnover was down at Rs 78,012 crore (Rs 82,153 crore).
>jayanta.mallick@thehindu.co.in
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