Last updated: 30 Jun, 2020 | 05:18 am
Provisions hit bottom line: Tata Steel’s consolidated net loss widened to Rs 1,096 crore in Q4FY20, compared with a profit of Rs 2,430.9 crore in the same quarter a year ago. This is higher than analysts estimates of a loss of about Rs 100 crore. The bottom-line was impacted due to a one-time provision of Rs 3,141 crore for the impairment of non-current assets.
Revenues in-line with estimates: Consolidated revenue of the company came in 20.40% lower to Rs 33,769.95 crore in Q4 FY20 from Rs 42,423.86 crore in Q4 FY19. The India operations make up about 36% of total revenues.
Margins narrow: The company’s operating profit fell 38% to Rs 4,647 crore. The Margin has also reduced to 13.7% from 17.7% earlier. Domestic hot-rolled coil prices fell by 8% over last year in the three-month period, impacting the margins.
Covid-19 impact: The lockdown has adversely impacted the group’s sales volume, mix and realisations in the various geographies it operates. Given the uncertain business environment, Tata Steel said that capex is being curtailed sharply and restricted to safety and sustenance projects. The capex plans will be revisited in H2 or when business conditions normalize. The firm’s Europe operations has come under fire for cutting jobs. Tata Steel Europe has closed its Orb Electrical Steels business in the UK.
Dividends: The board recommended a dividend of Rs 10 per share for FY20.
Steel manufacturing firms have been one of the worst-hit sectors due to the ongoing pandemic. According to estimates by India Ratings, the nation’s steel demand in FY2020-21 is slated to fall by about 15%. This will lead to oversupply, suppressed prices and rising inventories once the lockdown is lifted.
Tata Steel, being the largest steel producer, is well-poised to handle the ongoing crisis. Given the situation, the results have been good. Going forward, the company has guided that while there will be a sharp drop in volumes in 1QFY21, there are early signs of recovery. The company has raised additional funds of Rs.4,900 crores to build a contingency buffer. The liquidity at the end of the year remained robust at Rs.17,745 crores including cash and cash equivalents of Rs.11,549 crores.
Our VGQM model has a BUY rating on the stock.