Steel companies performed well in the June quarter on account of strong demand, high steel prices and operational efficiencies. Despite a rise in raw material cost, corporations delivered robust earnings thanks to their ability to pass on the cost increases.
Organisations such as Tata Steel and JSW Steel focused on value-added products, which helped bolster their margins. They also reduced their share of export sales due to robust domestic demand. Steel Authority of India Limited (SAIL) had a decent turnaround.
Performance of steel companies is expected to only improve from now on as the second half of the financial year is considered seasonally better than the first.
Strong demand
The global steel sector has been buoyant with a favourable demand-supply cycle. All the major Indian companies in the industry reported high revenue growth in the June quarter because of increased volumes and improved realisations. For instance, Tata Steel’s consolidated revenue grew by 22 per cent y-o-y to ₹37,833 crore in the first quarter of FY2019. Standalone performance, too, was healthy with the company reporting sales of 2.81 million tonnes in the domestic market, up by14 per cent y-o-y.
Likewise, JSW Steel reported consolidated revenue of ₹20,519 crore, a rise of 25 per cent y-o-y. The company’s domestic market sales stood at 3.83 million tonnes in the June quarter, up by 9 per cent y-o-y. SAIL recorded strong growth of 37 per cent in revenues (₹15,743 crore) and sales of 3.27 million tonnes — up by 8 per cent y-o-y.
Due to the robust demand within India, many companies increased production in the domestic market, reducing the share of exports. Tata Steel’s export share reduced to 5 per cent from 10 a year ago. JSW Steel’s share of exports came down to 12 per cent from 23 per cent, a year ago.
In addition to good volumes and better sales realisations, the other factor that aided the companies’ strong performance is the increased exposure to automotive and value-added products, which command a higher pricing premium. Tata Steel’s automotive segment and branded products, and retail and solutions segment sales increased by 49.5 and 11.6 per cent y-o-y respectively. Similarly, JSW’s sales to automotive customers grew by 57 per cent y-o-y. Its overall value-added and special products (VASP) constitute 55 per cent of total sales; sales volume in this segment grew by 6 per cent y-o-y.
Improved margins
Though the raw material prices have risen, companies’ ability to pass on the cost increase has helped them sustain their profitability and margins.
Tata Steel has notched up a healthy operating profit of ₹6,559 crore in the June quarter, up 32 per cent y-o-y. This is on account of increase in realisations though the raw material cost (major cost) increased by around 19 per cent y-o-y. The overall operating profit margins remained the same, at about 17 per cent, vis-à-vis the same period last year. Domestic operations have been more profitable with margins moving up to 30 per cent from about 20 per cent a year ago.
JSW Steel’s consolidated operating profit has increased by a robust 95 per cent to ₹5,105 crore in the quarter while standalone operating profit has increased by 119 per cent to ₹4,822 crore. Margins at operating profit level on a consolidated basis increased to about 25 per cent from 16 per cent a year ago. SAIL put up a good show as its operating profit increased multi-fold to ₹2,685 crore from ₹23 crore a year ago. The surge is attributable to increased volumes and realisations.
The net profit of Tata Steel, JSW Steel and SAIL stood at ₹1,934 crore (up 110 per cent), ₹2,339 crore (up 275 per cent) and ₹540 crore (up 167 per cent) respectively.
Debt movement
The reported net debt of Tata Steel stood at ₹1,03,529 crore, up nearly ₹11,000 crore from the previous quarter, because of its acquisition of Bhushan Steel. JSW reported net debt of ₹39,090 crore, an increase of ₹1,000 crore from the previous quarter, which the company attributed mainly to rupee depreciation.