Q1 Results: Low Prices, Weak Demand Hurt Tata Steel’s Profitability 

Lower prices and weak demand dragged Tata Steel Ltd.’s profit to its lowest since December 2016.

Net profit fell 64.3 percent over the last year to Rs 693.1 crore in the April-June period, according to the steelmaker’s exchange filing. That compares with the Rs 1,444.6-crore consensus estimate of analysts tracked by Bloomberg.

• Revenue rose 1.3 percent year-on-year to Rs 35,947.1 crore.
• Operating profit fell 15.4 percent over last year to Rs 5,376.8 crore.
• Margin narrowed 290 basis year-on-year points to 15 percent.

Domestic steel prices fell to their lowest in nearly two years, in line with the global slowdown. And higher raw material costs from supply disruptions and higher coking coal rates dragged product spreads—product price minus cost. That comes at a time China, which consumes half of the world’s steel, is expected to see a drop in demand. A slowdown in India’s automobile sector, that forced carmakers to cut production and shut showrooms, only added to the steelmaker’s woes.

“The steel sector is facing significant headwinds which has affected spreads and overall profitability,” TV Narendran, chief executive and managing director of Tata Steel, was quoted as saying in a media statement. “Increased government spending and efforts to address the liquidity crunch should help revive demand and steel prices in India in the second half of the year.”

Another problem for India’s oldest steelmaker during the quarter was the collapse of a planned joint venture with Thyssenkrupp AG that would have helped it transfer some of its debt to the European unit. Though it’s not looking for a partner anymore, it plans to pare debt through free cash flows and sale of non-core assets.

Shares of Tata Steel closed 4.75 percent lower before the results announcement compared with a 0.7 percent drop in the benchmark BSE Sensex.