Tata Steel Q1 cons PAT at Rs 3901 cr

Tata Steel Q1 cons PAT at Rs 3901 cr
Tata Steel Ltd has announced the following...
Tata Steel Group Earnings Beat Estimate on Prices (Update2)
Tata Steel Profit, Including Corus, Climbs

By Debarati Roy and Paresh Jatakia
Aug. 28 (Bloomberg) -- Tata Steel Ltd., India's largest producer, reported a better-than-expected 60 percent gain in first-quarter profit, including unit Corus Group Plc, on increased prices and output of high-grade products.

Net income rose to 39 billion rupees ($891 million) in the quarter ended June 30 from 24.3 billion rupees a year earlier, the Mumbai-based company said in a statement today. Five analysts in a Bloomberg survey estimated a median profit of 19.7 billion rupees. Sales climbed 39 percent to 435.6 billion rupees.

Steelmakers including ArcelorMittal and Posco raised prices this year after a threefold increase in coking coal rates and a near-doubling of iron-ore costs. Tata, which has held prices in India because of a government directive, faces the challenge of battling record raw-material costs, Chairman Ratan Tata said at a shareholders meeting in Mumbai today.

``Cost pressures will start kicking in in the coming quarters and that'll have a moderating impact on profits,'' said Sanjay Jain, an analyst at Motilal Oswal Securities Ltd. in Mumbai. The brokerage has a ``buy'' rating on the stock.

Global prices of hot-rolled coils, a benchmark product, are poised for their first monthly drop in a year, according to Steel Business Briefing. That may leave Indian producers little choice but to lower rates after keeping them unchanged since May.
``If international market prices come down, they will have to cut,'' Steel Secretary Pramod Rastogi told reporters Aug. 22.
A government order kept domestic prices as much as 15,000 rupees ($342) a metric ton below global levels, according to S.K. Roongta, chairman of Steel Authority of India Ltd., the nation's second-biggest producer.
Discount Narrows
A fall in global prices and cheaper imports from Southeast Asian countries has reduced this discount to $100 a ton, Mumbai- based India Infoline Ltd. said in a note dated Aug. 26.
``Domestic prices can come under pressure if international prices soften by $100-150 a ton,'' Bijal Shah and Sumit Pathak, analysts at the brokerage, said. ``Demand is weakening in Europe, U.S. and China and there are concerns on the global outlook.''
Tata Steel shares fell 1.6 percent to 571.95 rupees at the close of trading in Mumbai, before the earnings were announced. The stock has lost 39 percent of its value this year, compared with a 31 percent decline in the benchmark Sensitive Index.
The shares trade at about 8 times forecast profit, according to data on the Bloomberg. Falling prices may keep valuations for Indian steelmakers depressed, said Shah and Pathak.
Tata Steel is the worst-performer on the benchmark Sensitive stock index in the past three months, according to Bloomberg data.
`Buy' Ratings
Still, as many as 22 of 28 analysts tracking Tata Steel have a ``buy'' recommendation on its shares, with an average one-year price target of 932 rupees, according to Bloomberg data.
The company last month reported a 22 percent jump in first- quarter profit to 14.22 billion rupees from its Indian mills.
Tata Steel and Corus sell more than two-thirds of their production in Europe. While Tata imports a third of the coal needed for its Indian plants and mines its own iron ore, Corus buys both the raw materials.
The company is looking at forming iron-ore and coal ventures in Mozambique and scouting for limestone ventures in Oman, to secure raw material supplies, Tata told shareholders today.
Pension Assets
Meantime, the value of the pension funds of Corus, worth 14 billion euro ($21 billion) -- more than twice Tata Steel's market value -- eroded by 648 million euro in the period. The reduction has been accounted in the balance sheet, instead of profit and loss account, Tata Steel said in the statement.
Pretax profit would have been lower by 53.52 billion rupees had the previous practice of reflecting the value of pension fund assets in earnings been followed, Tata said.
``Given the size of the pension assets, it is a good idea to route it through the balance sheet to avoid huge fluctuations in earnings from quarter to quarter,'' said Giriraj Daga, an analyst at Khandwala Securities Ltd. in Mumbai. ``The losses are mark-to- market and can change. It's not a negative.''
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Tata Steel has declared its consolidated results for the quarter ended June 2008 (Q1). The company's net profit was at Rs 3914.6 crore (including Corus) versus Rs 2409.12 crore.
Its net sales were at Rs 43,508 crore (including Corus) versus Rs 31,162 crore.

Highlights
Margins at 16.1% vs 15.4% (YoY)
Margins at 16.1% vs 12.3% QoQ
Forex loss of Rs 303 cr vs loss of Rs 537 cr
Increase in stock in trade at Rs 1607 cr vs Rs 336 cr
Actuarial gains/ losses not shown in P&L in accordance with IFRS principles and permitted in AS21
Had it been accounted then Q1 profits would have been lower by Rs 5352 crore resulting in loss of Rs 1438 crore
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Tata Steel Q1 cons PAT at Rs 3901 cr
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Source:MC, Bloomberg