Tata Steel reported a higher than expected consolidated net loss of Rs 4,609.17 crore for the quarter ended June 20, 2020 as the coronavirus pandemic and subsequent lockdowns affected the steelmaker's sales volume, mix and realisation. The Indian steel major had posted a net profit of Rs 695.19 crore in the year-ago period.
It was the third straight quarter of losses for the company. Tata Steel saw a net loss of Rs 1,095.68 crore in the March quarter, which grew to Rs 1,229 crore in the September quarter.
Tata Steel's gross sales slipped 27.54 per cent during Q1 FY21 to Rs 23,812.50 crore from Rs 35,382.16 crore in Q1 FY20. Total revenue from operations fell 32.43 per cent to Rs 24,288.51 crore in the quarter under review from Rs 35,947.11 crore during the corresponding quarter in the last fiscal.
The company said that it had to scale down its manufacturing and distribution operations for a considerable period during the June quarter. "Though, the operations resumed during the later part of the quarter with limited availability of workforce and disrupted supply chain, the restrictions imposed adversely impacted the Group's sales volume, mix and realisation," Tata Steel said in a filing to the exchanges.
The Indian steelmaker reported Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) of Rs 1,455 crore for June quarter this fiscal, as opposed to Rs 5,117 crore in the same period last year. Production declined to 2.99 million tonnes in Q1 FY21 from 4.5 million tonnes in Q1 FY20.
Tata Steel said that it is continuously monitoring changes in future economic conditions while taking steps to improve operational efficiencies and financial outcome. Based on assessed potential impact on steel demand due to COVID-19 by Tata Steel Europe (TSE), a wholly-owned subsidiary of Tata Steel, the outlook for its UK operation is expected to be adversely impacted with respect to its ability to continue as a going concern and meet its liquidity requirements, the company said.
"In response to the COVID-19 pandemic, TSE as a whole including Tata Steel UK Limited (TSUK) continues to implement various measures aimed at conserving cash including but not limited to deferral of capital expenditures, reduction in administrative expenses, use of non-recourse securitisation programmes, seeking government-backed funding, etc," the company stated.
TSE's performance was affected with the overall weakness in economic activities in Europe and sharp drop in spreads. The company did receive short support from the UK and Netherlands governments, including cash flow deferrals of payables.
Tata Steel said that its operating level has recovered to 90 per cent by June-end and has since then increased further to 95 per cent, catering to both domestic and export customers. The company said that it has been reducing its exports ratio with improvement in the domestic market.
"India average steel realizations were lower due to the COVID impact during the quarter and about Rs 2,000 crore of costs were under absorbed due to the lower volumes and have been charged to the profit and loss account. Despite the drop in margins, there was a reduction in net debt of Rs 1,677 crore in India, including a reduction of Rs 577 crore and Rs 291 crore, respectively at Tata Steel BSL and Tata Steel Long Products," the company said.
In view of the uncertain economic environment, Tata Steel said that it has built up a liquidity buffer of Rs 20,144 crore, including Rs 14,178 crore of cash and cash equivalents. To preserve cash flows and focus on disciplined capital allocation, the company has curtailed its growth capital expenditure for this year and will be focussing primarily on safety environment and sustenance capital expenditure.
"During the quarter, we recalibrated our operations and our sales across geographies in line with underlying regulatory and market conditions. While this had an adverse impact on our volumes and our margins, we were successful in mitigating the impact as we pivoted the business towards export markets and successfully generated free cashflows despite adverse market conditions," said Tata Steel CEO TV Narendran. "While the risk of further COVID-19 outbreaks remains, we are cautiously optimistic that the worst is behind us. We continued to remain extremely focused on cashflows and liquidity management through this crisis."
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