If the financial results of some of India’s steel majors announced over last couple weeks are anything to go by, there may not be any dramatic upswing in their fortunes – at least not in the short term, or at least until the first quarter of the next fiscal year, beginning in April 2014.
Margins of most steel companies will remain squeezed due to the prevalent conditions vis-à-vis supply of raw materials, among other factors, though a section of the analysts following this sector have forecast a growth of 3-5 percent, backed by higher economic growth. (There’s a rider to this, too: Growth will only come if a stable government is elected when the country goes to polls.)
India’s single-largest integrated private steel manufacturer, Tata Steel, announced its Q3 results last week, posting a smaller-than-expected third quarter profit, disappointing analysts and shareholders, evident in the drop in the value of its shares after the results were announced.
The steelmaker posted a net profit of about US $80 million (Rs 5 billion) for the December-ending quarter, compared to a net loss of about $121 million (Rs 7.89 billion) a year ago. Net sales rose 14 percent.
What does this mean for the sector?
Analyzing Tata Steel’s performance in Q3, a report in the Live Mint said the company’s results showed its domestic business was still bearing “the pain of an economic slowdown.” On the other hand, its European business was doing somewhat better, thanks to the recovery in developed markets.
Europe is Tata Steel’s biggest market and production center, following its US $13 billion acquisition of the UK’s Corus in 2007. But without doubt, the Indian part of its operations remains critical to Tata Steel’s performance.
So, while a company like Tata can at least fall back on its operations outside India to revive a sagging bottom line, the same can’t be said for other Indian steel companies.
Jindal Steel & Power Limited, which declared its Q3 results in January, said it had posted a net profit of about US $89 million (Rs 5.6 billion), which was 35 percent below Q3 of December 2012, despite net sales being up by over 11 percent.
Another company, Jindal Stainless, saw its net loss widen to about $48 million during the third quarter ended Dec. 31, 2013, because of increased finance costs and rupee depreciation. The company had reported a net loss of about US $41 million in the corresponding quarter of the previous fiscal year.
Clearly, for the past several quarters now, almost as way back as 2011, Indian steelmakers have been suffering.
We break down the reasons why in Part Two.