Tata Steel net debt rises to Rs 52,400 crore in FY12

Tata Steel’s net debt increased 5 percent to Rs 52,400 crore in 2011-12, despite the company witnessing free cash flows of Rs 2,200 crore, Motilal Oswal said in a note that maintained a sell rating for the stock as outlook is not very encouraging.

“The net worth of the Tata Steel group increased by Rs 7700 crore to Rs 43300 crore largely due to equity infusion, asset sales, goodwill and asset translation gains. Core profit from India business after paying dividend contributed Rs 4700 crore, but this was offset by Rs 4200 crore of after tax loss in overseas operations,” the report said.

Other points from the report are as follows:

On outlook front, the brokerage feels the significant cost increases on account of power, freight, iron ore, etc for Indian operations are sticky. In 2011-12, the increase in revenue of Tata Steel India was driven by volumes and prices, but an increase in costs offset this.

A three-month delay likely in commissioning of the Jamshedpur expansion. The company is unlikely to meet the 1 million tonnes incremental volumes guidance this financial year.

Tata Steel Europe (TSE) is under enormous stress due to prolonged recession in Europe. Stricter environmental norms ahead will increase costs. The covenants on acquisition debt are also concerning.

As far as TSE is concerned it faces the challenge to deal with the steel price and raw material cost squeeze. Production loss is also resulting in rising specific fixed costs.

Shares of Tata Steel were down 0.7 percent at Rs 370.