Is it true that now Tata Steel has become more profitable than TCS in FY22?

After a gap of almost 14 years, Tata Steel managed to once again get the better of TCS in terms of total profits for the full year. Of course, TCS did marginally better in the fourth quarter. In fact, if you look at Q4, then the net profits of Tata Steel stood at Rs.9,835 crore, less than the net profits reported by TCS at Rs.9,959 crore for the fourth quarter. Tata Steel had to face solid headwinds in the form of higher cost of inputs, coking coal and power.

However, Tata Steel had already taken a lead ahead of TCS by the end of the third quarter and hence the full year profits for Tata Steel were comfortably more than TCS for the full year. For FY22, TCS reported net profits of Rs.38,449 crore. On the other hand, the net profits of Tata Steel were 8.6% higher at Rs.41,749 crore. The last time that Tata Steel had reported higher profits than TCS was way back in the year 2008, i.e. fourteen years ago.

Tata Steel has obviously benefited from a massive rise in alloy prices even as prices of all commodities have been rising. Despite facing input cost pressures, Tata Steel saw a sharp recovery in steel demand in the Asian and European markets, which was instrumental in pricing power for Tata Steel. The interesting point is that Tata Steel was making net losses just five years back and has seen a smart turnaround in Asia and Europe businesses.

While Tata Steel becomes the largest in terms of profits, it becomes the second largest in terms of annual sales with Tata Motors holding the distinction of reporting highest sales on an annualized basis. However, in market cap terms, Tata Steel at Rs.1.56 trillion ranks third behind TCS at Rs.12.93 trillion and Titan at Rs.2.07 trillion. It is in this market cap game, that Tata Steel may have a much more arduous climb compared to its group companies.

One of the big developments at Tata Steel is that it has been using the robust cash flows to reduce its debt. The debt levels have been cut to Rs.51,049 crore levels, a substantial fall over the last 3 years. This is after the acquisition of Neelachal Ispat Nigam. Even the additional Rs.12,000 crore capex in this year will be funded by Tata Steel from internal resources so the debt burden will not go up. That is likely to be value accretive.

Finally, Tata Steel also decided to be generous to shareholders in this particular year. It has paid out dividend of Rs.51 per share, with Tata Sons (holding 32% stake in Tata Steel) likely to be the biggest beneficiary of this pay-out. In addition, Tata Steel also plans to split the face value of the stock from Rs.10 to ten shares of face value 1 each. This is likely to bring the stock within a more popular trading range, something preferred by most retail investors