NEW DELHI/MUMBAI (Reuters) - Tata Steel Ltd (TISC.NS) said a phase of solid economic growth in Europe was supporting a recovery in steel demand in its main market, which also helped the company post results that easily beat analysts’ estimates in the March quarter.
The strong showing in Europe would come as a relief to the company’s new management, which has intensified cost cuts and focused on high-margin products to cope with softness in the region’s economy.
Tata Steel got a foothold in Europe through its $13 billion acquisition of Britain’s Corus in 2007.
“Europe appears to be entering a phase of solid economic growth, which is supporting a recovery in steel demand,” said Karl-Ulrich Köhler, chief executive of Tata Steel in Europe, which is also its biggest production centre.
“But EU steel use will remain at low levels historically against a background of continuing global overcapacity.”
ArcelorMittal ISPA.AS, the world’s top steelmaker, said last week that prospects for Europe and the United States were encouraging and it was cautiously optimistic for the rest of 2014.
The recovery in euro zone manufacturing accelerated at the start of the second quarter with solid growth across most of the bloc.
Tata Steel’s bigger-than-expected fourth-quarter profit was also helped by product launches in Europe throughout the year, 30 in total. The volume of new products sold in the region rose more than 75 percent in 2013/14 compared with a year earlier, the company said in a statement.
Net income hit a three-quarter high of 10.36 billion rupees ($173 million) in the three months ended March 31, compared with a year-ago loss. Net sales jumped 23 percent to 420.18 billion rupees.
Analysts on an average had expected a profit of 9.64 billion rupees on sales of 391.9 billion, according to data from Thomson Reuters StarMine.
Expectations of a strong quarter had lifted the company’s shares, which closed up 6 percent at 452.35 rupees before results were announced. The stock has gained 16 percent since Tata Steel reported an estimate-trailing third-quarter profit in February.
Tata Steel, founded in 1907 and part of the Tata group that also owns British luxury car maker Jaguar Land Rover, has long enjoyed strong margins in its Indian operations because it mines most of the iron ore and coal it needs as raw material.
But a clamp down on illegal iron ore mining and controversies surrounding allocation of coal mines to private companies have forced some Indian steel companies to look for assets abroad.
The Supreme Court is hearing an appeal on illegal iron ore mining in Odisha, but Tata Steel’s Executive Director Koushik Chatterjee said its mines there were operating with all necessary clearances.
($1 = 59.7800 rupees)
Reporting by Krishna N Das and Siddesh Mayenkar; Editing by Matt Driskill and David Holme