MUMBAI: Boosted by other income from the sale of investments in group companies, Tata Steel on Thursday reported a 22% jump in second quarter (Q2FY16) consolidated net profit to Rs 1,529 crore. The spurt in net profit came despite an 18% decline in sales to Rs 29,069 crore, which was because of a surge in cheap Chinese imports into its key markets, India and Europe.
Revenue from its steel business fell 18% to Rs 28,396 crore and gross profit from this segment declined 68% to Rs 987 crore as global steel prices dropped to its lowest level in six years. Tata Steel’s other income jumped to Rs 2,938 crore during Q2FY16 on account of its sale of stakes in Tata Motors, Titan and Tata Incorporated.
Tata Steel took an impairment charge of Rs 8,015 crore on some of its non-performing business units during Q2FY16. Of this amount, a Rs 7,772 crore charge was on account of its strip operations in Europe, mostly those in the UK, the company said. The steel maker’s management said that the European long products business doesn’t have any long future within the company and that it is pursuing all options including sale of the unit.
The impairment charge, however, was more than offset by a Rs 9,683 crore exceptional credit on account of its reworked pension deal with its UK and Netherlands employees.
Tata Steel’s European unit, despite undertaking three rounds of restructuring including axing 2,000 job cuts in Q2FY16, reported a gross loss of Rs 238 crore.
Weak European market conditions, primarily in the UK, surging Chinese imports, a strong pound, declining competitiveness of steel manufacturing and steep business costs, were challenging for Tata Steel. Karl-Ulrich Kohler, CEO, Tata Steel Europe said that the company has been successful in improving its Netherland operations at a gross profit level, UK remains a problem where the restructuring will continue with cost reductions being the top priority. Tata Steel’s India unit reported a net profit of Rs 2,523 crore in Q2FY16. Investment cycle in India is yet to revive as economic growth is slower, said TV Narendran, MD, Tata Steel.
As on September 30, 2015, Tata Steel had a debt of Rs 73,480 crore while it had Rs 7,290 crore as cash and cash equivalents on its books.