When Tata Steel bought Corus, it was considered as the most audacious leveraged buy-out in Indian corporate history. For the first time since the transaction in 2006, the European operation has made a small contribution to the total net profit.
Tata Steel, the seventh largest steel company in the world, reported a consolidated net profit against a loss in the year ago period. The company reported a net profit of Rs 8,983 crore over revenue of Rs 1,17,150 crore for the year ended March 2011. This is against a net loss of Rs 2,009 crore over revenue of Rs 1,01,758 crore in the year ago period.
However, the contribution from the European business to profits is low in comparison to high growth and high profit Indian operation. Tata Steel’s standalone operation contributes 77.5% of the consolidated net profit while contributing only a third of the global revenue. Tata Steel’s European business accounts for two-thirds of the revenue.
This perhaps gives a sense of the task ahead for the company’s management.
The better performance in Europe was on the back of better pricing for products due to a rise in demand. The company also sold business assets worth Rs 2,300 crore during the year. The company sold some non-core assets during the year too.
The stock market was closed when the company announced its results. The company’s share price fell 0.8% in line with the broader market trend. Tata Steel shares, valued at $11.2 billion, have declined 17.5% so far in 2011, compared with a nearly 13% fall in India’s benchmark index.
• The company has said last week that it will cut 1,500 jobs in Britain as part of a restructuring exercise and also cut capacity in England. The successful completion of this exercise could help the company reduce costs.
• Net debt at the end of March 2011 at Rs 46,632 crores (US$10.46 billion) fell from Rs 52,836 crores (US$11.85 billion) at the end of the previous quarter. The company needs to do more to reduce the interest burden of Rs 2,770 crore and shareholders would want to watch the trend here. This takes away close to 25% of the operating profit.