Tata Steel, the steel giant, saw incredible growth this quarter in terms of profits, Q2FY22. In the second quarter, the steelmaker saw its revenue grow by ~62% YoY and ~13% QoQ. The revenue growth eventually resulted in a whopping ~660% growth over a year. In the current quarter, Q2FY22, the company scored a net profit of Rs 11,918.1 crore against Rs 1,565.4 crores last year, the same quarter. The company’s profits grew by ~33% over the previous quarter.

Source: Company Website

What Drove The Quarterly Results?

In the previous marketfeed articles, we have discussed the steel market in COVID-19 times. We have addressed the industry’s stress globally, China’s involvement, and how the sector recovered post-pandemic. To know more, you can read: 

Global Steel Prices Volatility, China-Australia Trade War and Indian Metal Market: Analysis

Reasons Behind the Rise in Steel Prices in India

Steel Prices Surge in India; is China Hoarding Global Steel?

To sum it up, steel plants were operating below capacity, China, the largest steel supplier, had disrupted global supply citing environmental concerns. Post-pandemic, the supply picked up, at least in India, yet, the prices remained high globally. Indian steelmakers took advantage and gained higher margins on exports. 

The current quarter saw high vaccination rates, normalised trade, and healthy steel prices in the international steel market. Like other steel companies, Tata Steel managed to gain higher realisations in the domestic market. In the global market, Tata Steel managed to play on better price realisations and increased volumes. However, lesser ‘deliveries’ in Europe impacted the profit numbers

For Tata Steel, production increased by 2% on QoQ and 4% on a YoY basis despite planned maintenance shutdowns. Steel sales volume increased by 4% QoQ base with best-ever quarterly sales of Rolled Products.

Currently, Tata Steel is working on offsetting its debt. The company’s debt stood at Rs 88,501 crore in the quarter ended March 2021. The debt was reduced by 11.2% to Rs 78,163 crore in the current quarter. The company plans to reduce gross debt by nearly Rs 14,000 crores in FY22 while prioritising off-shore debt repayment.

The company saw its operating expenses increase by 41% YoY and 17% QoQ. The expenses increased primarily due to an increase in the purchase of  Iron ore and coal consumption cost across its key entities and also higher purchase of Finished & Semi-finished goods.

In other news, the shortage of semiconductors in the automobile has hit the demand. The problem is likely to persist in the short term. Once the problem is mitigated, one can expect a healthy steel sales volume in the automobile sector.  

The company’s investor presentation states its future goals. The company plans to offset a huge amount of debt and aim for strong earnings and improved cash flow performance. It intends to focus on capital allocation, cashflow, and working capital management. Moreover, the company plans to spend Rs 10,000- Rs 12,000 crore as capital expenditure. 

Recovering markets have paved the way for greater demand for steel and lowered material costs. India steel demand is expected to improve, supported by govt’s push for infrastructure spending and consumer demand with the onset of the festive season. One can expect demand improvement across segments and high coking coal prices. Coking coal is a very critical raw material in manufacturing steel.