There’s no escaping the specter of Europe, not even in India.
Tata Steel, India’s largest and Europe’s second-largest steel producer, was hit hard in the quarter ending in September, sending its share price down 4.19 per cent on Friday as markets reacted to the company’s results announcement on Thursday.
Analysts blamed the poor numbers – which came in well below estimates – on the effect of the eurozone crisis on construction, a major customer of the steel industry, and on the rising cost of raw materials.
“It’s been pretty tough [for Tata Steel Europe]; the situation within Europe has never come back to the level of activities pre-financial crisis – the slowdown in demand has put pressure on the margins for this company,” said Sanjay Jain, analyst at Motilal Oswal.
Total group net profits for the quarter fell to $42.3m, down 89 per cent from $393.9m during the same period last year, despite a 15.7 per cent increase in consolidated net sales to $6.49bn.
Net sales for Tata Steel Europe – formerly the Anglo-Dutch company Corus, which the Tata Group bought in 2007 for $14bn – which accounts for 65 per cent of total group revenues, were up 19 per cent over the same period last year at $4.22bn.
Despite rising sales, Tata was hit by steel prices in Europe which Koushik Chatterjee, chief financial officer, told Reuters had fallen $30 per tonne on average, while raw materials prices rose $50 per tonne.
“They got squeezed between the finished product price cuts and the raw materials price increase,” Jain said.
Tata’s raw materials costs for the quarter increased 15.1 per cent to $2.16bn.
While also hit by higher prices of raw materials, the Indian arm of the group performed better than the European one. Earnings before interest, taxes, depreciation and amortisation for Indian operations for the quarter was down 16.9 per cent from the same quarter last year, at $557.3m, but ebitda for the European arm was down nearly 43 per cent, at $100.8m.
Tata Steel Europe needs to turn its ebidta around, Ravindra Deshpande, analyst at Elara Capital, told beyondbrics. But he says that’s unlikely to happen.
“There has to be margin expansion, which will not happen, and then even volume growth will not happen in the European arm,” he said. “So [it will] depend on the Indian arm of this company for the stock to perform.”
The Tata Group – which has been touted as the UK’s largest manufacturing employer – acquired Corus in 2007 in the biggest ever foreign acquisition by an Indian company. At the time, Corus was four times the size of Tata by volumes and the move was expected to turn Tata into a global brand.
But Corus has come with its own problems and became one of the biggest casualties of the 2008 recession – now that the financial crisis is back in full swing, so, too, are Corus’s troubles.
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