Higher raw material cost and lower average selling prices in its European operations have hit steel major TATA Steel hard with the company reporting a steep 93% fall in its net profit at INR 139 crore for the quarter ended September 30 against profit of INR 1,968.23 crore in the year ago period.
In an interview to NDTV Profit, Mr Koushik Chatterjee CFO of TATA Steel explains the reasons behind the fall and gives his view on how the company is going to perform in the future.
Below are the excerpts of the interview.
NDTV - Huge disappointment on the profit after tax (PAT) front, what went wrong?
Mr Chatterjee - The PAT has lowered primarily on account of lower realizations in Europe and Russia as a significant increase in raw material prices in Europe, where the iron ore and coking coal prices were contracted earlier, has impacted the profit and loss for this quarter. So, these are the basic reasons why the PAT has been lowered compared to the previous quarter.
NDTV - In percentage terms, what's been the basket increase per tonne in raw material costs and what's the hit you've taken on account of lower selling prices in Europe?
Mr Chatterjee - An increase in the raw material prices has been almost more than USD 50 per tonne. Moreover, the selling price decrease in Europe has been about USD 30 per tonne. In India, the coal prices increased by about USD 21 per tonne on an account of newer contracts for coal.
NDTV - The Eurozone crisis has worsened compared to the last quarter, what's the outlook?
Mr Chatterjee - In Europe, the environment is extremely volatile and uncertain, and therefore, this affects the perception as far as consumption of steel is concerned. Given the volatility in both iron ore and coal prices as well as the weaker demand in Europe, where the selling prices have been lower, the situation is much more uncertain than in the past quarters.
We are looking at significant amount of management efforts to reduce cost and optimize the volume and product mix to sustain in this uncertain market.
NDTV - How you see margins panning out?
Mr Chatterjee - The Indian margins have been at about USD 350 per tonne for this quarter, much lower compared to the previous quarter on account of increased coal prices. We see similar levels of margins going forward in the near term unless there is a significant demand impact in India.
As far as Europe is concerned, we had about USD 30 EBITDA margin for this quarter and this is a very uncertain environment, so it’s really difficult to predict EBITDA margins on a slow quarter like a December quarter, where we have the winter shut-downs in Europe.
NDTV - What's the outlook on demand and prices? Is it becoming difficult to predict given how volatile the situation is?
Mr Chatterjee - Steel prices across the world have softened much more than the recent drop in iron ore and coal prices. We are looking at how this situation stabilizes because the newer contracts for iron ore and coal would come into picture.
However, it is largely given by the volume and the steel demand in the next two quarters, which remains subdued at this point of time
NDTV - Are you on track as far as the volume growth is concerned?
Mr Chatterjee - The volume growth for India should remain as planned till the end of fiscal. India should see volume growth or still demand growth of about 7% to 8%
We are focused on improving and increasing our capacity. Our Jamshedpur project is currently underway and we hope to commission it by the end of this year.
NDTV - What has the hit been on account of rupee depreciation?
Mr Chatterjee - There is no material cash impact on the balance sheet on account of rupee depreciation because most of our term depths are hedged out. In fact, we are significantly hedged as far as these term depths and translation fluctuations are concerned.
Our profit and loss statement (P&L statement) depends on how the rupee moves. We have taken at about INR 150 crore of charge on account of the last quarter’s rupee depreciation, which happened suddenly in the last ten days and we continue to monitor the same.
Source - profit.ndtv.com
