The Hindu : Business : High input costs hit Tata Steel’s net profit

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Business

High input costs hit Tata Steel’s net profit

Special Correspondent

Merger of Hoogly Met Coke with Tata Steel gets board nod

Net drops by 47 % to Rs. 789 crore
in first quarter
Absolute market share improves
by 6 %

— PHOTO: SHASHI ASHIWAL

OPTIMISTIC: Tata Steel Managing Director B. Muthuraman addresses a press conference in Mumbai on Wednesday.

MUMBAI: Tata Steel has been severely impacted by record input costs resulting in a drop of 47 per cent in its net profit at Rs. 789.83 crore for the first quarter ended June 2009 against Rs. 1,488.40 crore in the corresponding period in the previous year. Net sales were also down at Rs. 5,554 crore (Rs. 6,087.23 crore).

The operating profit also declined to Rs. 1,535.40 crore (Rs. 2,820 crore).

A significant part of this difference is owing to the major hike in raw material costs with the cost of coal itself accounting for around Rs. 300 crore. The company produced 1.542 million tonnes (1.186 million tonnes) of steel and sold 1.417 million tonnes (1.159 million tonnes) during the quarter.

Since production of steel was higher, the company used more coal and that impacted costs, Tata Steel Managing Director B. Muthuraman said While in 2007-08, coal was imported at $75-80 a tonne, in the first quarter, the company imported it at $300 a tonne, he added.

The board of the company has announced the scheme of amalgamation of Hoogly Met Coke & Power Company Ltd. (HMCPCL, a wholly owned subsidiary) with Tata Steel. This will be effective April 1. This development obviates the need for the company to henceforth depend on expensive imported coal as HMCPCL has a capacity of 1.6 million tonnes of coke which is already consumed by Tata Steel. “By the end of the second quarter, we will not need to import any coal,” said Mr. Muthuraman, adding that 40 per cent of the increase in raw material costs in the quarter was due to imported coal with the balance due to production increases.

The company increased its absolute market share by six per cent in the quarter. “The increase is from higher sales of long products to the infrastructure sector, ” he said.

Mr. Muthuraman said from the current levels, the average price of steel for the full year would be lower by about Rs. 1,000 a tonne. “This year, we are likely to be selling about 20-25 per cent more than last year,” he added.

Tata Steel’s European operations have only seen a marginal price and volume increase. However, the first quarter capacity utilisation of 53 per cent at its European works is likely to go up significantly in the rest of the year. “In the current quarter, it will go up to 65 per cent, to 75 per cent in the third quarter and 85 per cent in the last quarter of this year,” said Mr. Muthuraman, adding that the average for the year would be 75 per cent.

He said the company’s ‘Weathering the storm’ initiative in Europe had affected savings of $450 million to date and for the full year, savings would go up to $1.2 billion. Its long term ‘Fit for future’ programme would yield annual savings of 300 million pounds on a continuing basis. He said “our long-term aim is for the European operations to become cost competitive and have operating margins of $100 a tonne in normalised prices.”

He said in Europe, the company was aiming at achieving 50 per cent raw material security in 5-6 years. “So we have iron ore projects in Mozambique, Canada, South Africa and Ivory Coast. All of these will come on stream over the next 5-8 years,” he added.

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