Tata Steel reports consolidated financial results for the quarter and full year ended March 31, 2020

The COVID-19 outbreak has led to an unprecedented health crisis and has disrupted economic activities and global trade.

Consequently, according to the company, global steel demand is expected to be sharply lower in 2020 before a meaningful recovery in 2021.

The Union government had imposed a stringent nationwide lockdown with effect from March 25, 2020, severely impacting manufacturing activities.

Steel and Mining were exempt from the lockdown measures, albeit subject to certain guidelines.

However, steel demand was affected as key steel consuming sectors struggled to operate amidst weakening economic activities, working capital constraints, shortage of manpower and logistical issues, the company said in a release.

The company also pointed out that in Europe, the outbreak of Covid-19 had further accentuated the sustained weak steel demand.

Share of steel imports to total consumption in EU remains at elevated levels which is a cause of concern, according to the company.

After witnessing a decline in steel demand growth in 2019, EU is expected to see a recovery in demand only in 2021.

With the phased removal of the lockdown restrictions in India, the company said that its upstream steel making operations have been ramped up and are currently operating at about 80 per cent utilization levels, while the downstream units have reopened and are steadily ramping up too.

The company said that there are early signs of a recovery in steel demand on the back of increased spending on infrastructure projects as well as rural demand.

In Europe, Tata Steel Europe continues to operate at about 70 per cent utilization level, according to the release.

Key steel consuming sectors such as the automotive and construction sector, continue to be adversely affected, though demand for packaging material has seen a sharp upsurge.

Said T V Narendran, CEO & Managing Director, “FY20 has been a challenging year.  The Indian economy slowed down in the first half with key steel consuming sectors like automotive contracting sharply. While the economy began recovering in the second half, the outbreak of Covid-19 in end March led to unprecedented disruption and heightened economic uncertainty. We have recalibrated our operations in line with the evolving business environment and are focused on conserving cash while actively de-risking the business.”

Narendran said that while there will be a sharp drop in volumes in 1QFY21, the company is seeing early signs of recovery and remains poised to leverage its position on normalization of business conditions.

Key operating and financial highlights of full year and the quarter as reported by the company --

Indian operations:

India steel production grew 8 per cent YoY to 18.20  million tonnes in FY20 with ramp up at Tata Steel BSL and acquisition of Usha Martin’s steel business by Tata Steel Long Products. In 4QFY20, it grew by 6 per cent QoQ to 4.73  million tonnes.

India steel deliveries grew 4 per cent YoY to 16.97  million tonnes in FY20 despite a 17 per cent QoQ drop in 4QFY20 deliveries to 4.03  million tonnes due to the nationwide lockdown in late Mar’20.  Branded Products & Retail segment achieved an 8 per cent YoY improvement in volumes to 5.32  million tonnes.

Tata Steel BSL achieved best ever crude steel production and sales at 4.46  million tonnes and 4.14  million tonnes, respectively on the back of improved maintenance practices, higher capacity utilizations and marketing synergies. EBITDA improved by 173 per cent QoQ to Rs 775 crores in 4QFY20.

Tata Steel Long Products, which acquired the steel making facility of Usha Martin during the year, achieved crude steel production of 0.58  million tonnes  this year while deliveries stood at 0.51  million tonnes.  EBITDA improved sharply to  Rs 132 crores in 4QFY20 compared to  Rs 36 crores in 3QFY20 as the benefits of improvement in operating KPIs helped in stabilizing operations and reducing costs.

India revenue from operations stood at  Rs 82,125 crores for FY20 and  Rs 19,493 crores for the quarter. Reported EBITDA was  Rs 17,650 crores for FY20. 4QFY20 EBITDA improved by 11 per cent QoQ to  Rs 4,568 crores on account of better realizations.

India FY20 EBITDA margin stood at 21.5 per cent and EBITDA/t was  Rs 10,400. For the quarter, EBITDA margin stood at 23.4 per cent and EBITDA/t was  Rs 11,339.

Tata Steel Standalone developed 28 new products during the quarter with applications ranging in automotive, consumer durables, tube manufacturing and construction.

Tata Steel Jamshedpur has been able to achieve substantial improvement in water consumption with specific consumption rate improving to 2.80 m3/tcs in FY20 from 3.27 m3/tcs in FY19. Solid waste utilization increased at both Tata Steel Jamshedpur and Tata Steel Kalinganagar to 102 per cent and 101.2 per cent.

European operations:

Liquid steel production marginally declined to 10.26  million tonnes in FY20; it grew by 5 per cent QoQ to 2.64  million tonnes in 4QFY20. Deliveries declined by 4 per cent YoY to 9.29  million tonnes in FY20 primarily due to overall weakness in economic activities; 4QFY20 deliveries increased 2 per cent QoQ to 2.39  million tonnes  amid COVID-19 crisis.

Revenue from operations decreased to  Rs 55,939 crores in FY20 primarily due to sharp decline in European steel prices and lower deliveries, resulting in loss of  Rs 664 crores at EBITDA level. In 4QFY20, revenues declined by 2 per cent QoQ to  Rs 13,588 crores while EBITDA improved to  Rs 65 crores compared to EBITDA loss of  Rs 956 crores in 3QFY20.

Tata Steel Europe launched 22 new products launched in FY20 with 10 new products in 4QFY20. These included a new automotive body panel steel allowing improved paint finishes, the strongest hot-formed structural hollow sections for construction and a nickel-plated steel for use in car lighting systems.

Tata Steel Europe is committed to make its operations simpler, leaner and sustainable. It has launched a transformation program to generate savings across multiple initiatives.

Key corporate developments:

Given the uncertain business environment, capex is being curtailed sharply and restricted to safety and sustenance projects. The capex plans will be revisited in H2 or when business conditions normalize.

Tata Steel Mining Limited, a wholly-owned subsidiary of Tata Steel, has signed 50 year leases for Kamarda and Saruabil Chromes mines. It has also won Sukinda Chrome ore mines in the auction and the lease grant process is underway. With these mines, Tata Steel Mining is well placed to cater to its global customer base as well as requirements of Tata Steel Group.

Tata Steel Europe closed its Orb Electrical Steels business in the UK. The company offered employees alternative opportunities where possible at other sites.

South East Asian operations continued to be classified as ‘Asset held for sale’. While Tata Steel continues to engage with the strategic players for its divestment, the outbreak of COVID-19 has delayed the process.

Koushik Chatterjee, Executive Director and CFO, said, “Given the heightened uncertainty due to the Covid-19 pandemic, we are focused on conserving cash and ensuring adequate liquidity to face potential disruptions in the operating environment. We have pivoted business decisions on cash flows and successfully driven cash neutrality in our operations by reducing spend, managing working capital and curtailing capital expenditure. We also raised additional funds of  Rs 4,900 crores to build a contingency buffer. Our liquidity at the end of the year remained robust at  Rs 17,745 crores including cash and cash equivalents of  Rs 11,549 crores.”