Tata Steel reports strong quarter amid buoyant demand, higher prices

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After a better-than-expected performance by India’s Tata Steel in the fourth quarter and the full year, the company has put its plan to sell off its Southeast Asian business on the backburner for now.
In both earnings and cash flows, Tata Steel reported one of its best performances, despite the COVID-19 pandemic.
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Tata Steel profit jumps 79.7%

The steelmaker’s consolidated net profit rose 79.7% over the preceding quarter, while operating profit rose 48% sequentially.
Its consolidated sales volumes rose 0.43% quarter over quarter to 4.67 million tons. For the full year, it reported 17.31 million tons, up from 16.97 million tons in fiscal year 2020.
The company also managed to reduce its debt by 28% compared to the previous fiscal year.
While presenting its results, Tata Steel said its Southeast Asia business is performing much better now. As such, instead of going ahead with the plan announced in 2019 to spin it off, it had decided to focus on running it.
That portion of the business includes NatSteel Singapore, NatSteel Vietnam, and Millennium Steel Thailand.

Instead, Tata Steel is now focusing on consolidating operations, boosting margins and reducing debt.
In addition to the Southeast Asia business, Tata Steel’s international operations also includes Europe, where it is splitting its UK and Netherlands units. After separation, the focus will be on transformation, especially of the UK unit, the company said.

Strong performance despite pandemic

Koushik Chatterjee, executive director and CFO, said the Q4 performance had been a “standout” in terms of both earnings and cash flows. The quarterly performance helped the company to report one of its highest underlying performance for the full year, in spite of pandemic-related disruptions during the first half of the financial year.
Steel analysts point out that the shelving of the plan to spin off the Southeast Asian business was obvious after Tata Steel’s stellar performance.
About two years ago, the company’s financials were not looking as hot as they are today. At that time, management decided to focus on the company’s Indian operation and get rid of the other “unviable” operations.
But not so now.
India’s steel sector is on an upward trajectory because of renewed domestic demand. Prices have more than doubled to nearly US $1,000 per ton. Demand is outstripping supply.
Many experts tracking Tata Steel now believe that if the current second wave of the pandemic subsides in the next few weeks, Tata Steel could embark on a “calibrated growth journey” and work to get rid of its past liabilities.
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