NEW DELHI (Reuters) - Tata Steel Ltd(TISC.NS) reported a sharply higher-than-expected second-quarter profit, helped by a rise in prices and market share at home but it said Europe was still challenging despite an improving performance there.
Europe is Tata Steel’s top market and production centre, but it has struggled there since gaining an entry through its $13 billion acquisition of Corus in 2007.
However, the company said its operations in the region were stabilising and production there grew sequentially some 3 percent in the three months to September 30. Quarterly operating income from the region improved to 5.54 billion rupees, compared with an operating loss of 400 million rupees a year earlier.
“The investments in our asset base are proving their worth in what continues to be a challenging market,” Karl-Ulrich Köhler, chief executive of Tata Steel’s European operations, said in a statement.
July-September consolidated net profit, after minority interest and share of associates, was 9.17 billion rupees, compared with a loss of 3.64 billion rupees a year earlier, Tata Steel said.
Net sales at the company, the second-largest steel producer in Europe, rose 7.4 percent to 363.7 billion rupees. Analysts had expected a profit of 3.67 billion rupees on revenue of 332.74 billion rupees, according to Thomson Reuters I/B/E/S.
European steel demand is expected to pick up slowly in the third quarter and to continue to grow as steel-using sectors recover, said the company, which is trying to cut costs and focus on high-margin products.
Tata Steel said last month it may cut about 500 jobs in the UK under plans to restructure the part of its business supplying construction and engineering industries.
Last month it won a contract to supply Britain’s Network Rail with more than 95 percent of its rails for at least five years. The contract is significant for the company following a $1.6 billion writedown announced in May mainly due to weak demand in Europe.
Signs of a turnaround for Tata Steel in Europe comes after ArcelorMittal SA ISPA.AS, the world’s largest steelmaker, with 44 percent of crude steel production capacity in the region, said on November 7 a two-year slump was over and prospects for 2014 were looking up.
Tata Steel’s European operations “surprised us positively with better-than-expected volumes and profitability”, Bhavesh Chauhan, an analyst at Mumbai brokerage Angel Broking, said.
“STEADY” INDIA OPERATIONS
In India, Tata Steel said a weak economy may affect demand from steel-consuming sectors, although volumes were steady during the quarter despite the seasonal effects of monsoon rains and weak macroeconomic conditions.
Tata Steel has raised prices in its home market and gained market share as a weak rupee curbed imports. It said a new steel plant being built in eastern India was making “good progress”.
Tata Steel’s shares closed 1.5 percent higher before the results were announced, in a Mumbai market that fell 0.5 percent. The shares have risen more than 7 percent since the ArcelorMittal comments.
Indian steel stocks are the worst performers in the Asia-Pacific region so far this year, according to Thomson Reuters data. Tata Steel’s net debt of 643.34 billion rupees is the highest among the six top steel companies in India. (Additional reporting by Tripti Kalro in Bangalore; editing by David Evans)