InvestorQ : Why did Tata Steel net profits fall so sharply in the Sep-20 quarter?
ishika Banerjee made post

Why did Tata Steel net profits fall so sharply in the Sep-20 quarter?

Niti Shenoi answered.
2 years ago

Let me clarify that the fall in PAT that you are seeing is purely due to an extraordinary factor of deferred tax credits in Sep-19 quarter. However, you must be aware that the Tata Steel Q2 Operating Profit more than doubled to an attractive level of Rs.4020 crore.

If you look at the top line, there was robust demand from domestic markets and also from international markets. Tata Steel reported 7.45% surge in Sep-20 quarter top line sales revenues at Rs.37,154 crore. Specifically, steel exports to China and Vietnam as well as other South Asian countries has picked up sharply.

What is really relevant for Tata Steel this quarter is the operating profit which was up by 138% at Rs.4020 crore. Tata Steel managed to rein in cost of raw materials consumed, which almost fell by 20% yoy. As a result the operating margin or OPM improved from 4.89% in the Sep-19 quarter to 10.82% in Sep-20 quarter on better cost management.

Now I come to the issue of the 60% fall in PAT that you had asked about. It must be noted that this fall is purely and entirely due to an Rs.4365 crore deferred tax credit enjoyed by Tata Steel in the Sep-19 quarter. Else, Tata Steel would have reported net loss in Sep-19 quarter. The result was that PAT margins fell to 4.40% in Q2 but this is just one-off.

In terms of revenue mix, Tata Steel India accounted for 36% while Tata Steel Europe constituted 30%. The balance was the recent NCLT acquisitions like Tata Steel Long Products and Tata Steel BSL. Trading also contributed a good chunk of the balance sales. This is likely to improve in terms of profitability once Tata Steel is able to monetize some of its Europe assets.