​Tata Steel’s weak performance in 2014-15, rubbed off on its stock price, which fell 5 per cent on Thursday. An impairment charge of around ₹6,000 crore primarily relating to the write-down of goodwill and other assets in its European operations resulted in the company posting a consolidated net loss of ₹3,926 crore in 2014-15. It reported a net profit of ₹3,595 last year.

But even excluding the one-time impairment charge, Tata Steel’s financial performance has been muted in 2014-15. It is the first time in many years, that the steel major has reported a fall in operational income - down 6 per cent in 2014-15 compared to the year-ago period.

Weak steel prices and a ban on its mining operations led to a steady deterioration in Tata Steel’s profitability through the FY15 fiscal.

Sluggish domestic business

The slowdown in the company’s high-margin India business impacted its overall performance. Indian operations account for 30 per cent of its consolidated revenues.

Subdued domestic steel demand coupled with the surge in steel imports impacted the company’s sales realisations during 2014-15. As a result, even as volumes grew 2.7 per cent year-on-year, sales turnover remained flat.

A sharp rise in imports - 80 per cent growth in flat steel products and over 200 per cent in long steel products - has hurt the pricing power of domestic steel manufacturers.

Mining ban

The company has in the past enjoyed an advantage over other domestic players, on account of its captive iron ore resources. But the ban on its mining operations has forced the company to source expensive iron ore from outside for its India operations.

The EBITDA per tonne (operating profit per tonne of steel), has thus declined 26 per cent (year-on-year) to ₹11,546 in 2014-15. The slide in EBITDA per tonne was even sharper in the latest March quarter, shrinking almost 60 per cent.

With the company’s mines turning operational since December 2014, the situation is likely to improve. But the full benefit of this will only accrue to the company, once it completely liquidates the existing stock of high-cost iron ore. Even so, a pick-up in economic growth, which will boost domestic steel demand, is critical for a turnaround in performance.

European operations

Tata Steel reported a fall in overall sales volumes (down 1.4 per cent) and turnover (down 5.7 per cent) from its European operations during 2014-15. Higher sales of high-margin valued-added steel products (over a third of sales), however aided the operational performance. The EBITDA per tonne for the European operations improved to ₹3,135 (up 45 per cent year-on-year) during 2014-15.

Given the continued weakness in the global steel industry and subdued commodity prices, Tata Steel booked an impairment charge - write-down of its long products business in Europe and some of its overseas investments.

Related Topics