Tata Steel's recent net profit decrease can be attributed to various factors. Here you’ll find in detail of which factors might have contributed to decreased net profit and impact on other ratios.
Here’s the apparent steel use and GDP per capita in China, India, Brazil, Japan, Germany, the UK, & USA with the USA having the highest GDP per capita & China as the highest ASU (in 2022)
Few Reasons Why Investors Prefer Tata Steel in Their Portfolio:
- Achieved the highest annual crude steel production of 21 mn tons in India
- EBITDA of ₹23,402 CR that translates to ₹7,962/ton
- Union of 3 listed & 2 unlisted Indian subsidiaries
- Execution plan of EAF-based steelmaking in UK
- Dividend recommended of ₹3.6/ fully paid-up equity share (FY23 had similar values)
- Tata steel performance was higher than NIFTY, & BSE Metal Index
Background. In May 2022, Tata Steel announced its plan to set up its first electric arc furnace (EAF) facility in north India's Punjab state. The proposed 750 ttpa plant will be supported by the company's 500,000 t/yr steel recycling plant at Rohtak, Haryana that was commissioned in 2020.
Cost Impacting Areas For Tata Steel:
a) EU manufacturing PMI (the purchasing manager’s index an economic indicator comprised of monthly reports and surveys from private sector manufacturing firms) remained controlled between 45 to 47 levels during Jan - Mar'24
b) Elevated inflation and geopolitics continued to weigh on steel end use sectors
c) Cost Changes: Have been primarily driven by lower royalty related expenses in India and relining expenses in Netherlands
d) Volume/Mix: Primarily driven by higher deliveries in India and Netherlands
e) Others: Relates to MTM (mark to market) loss on financial instruments
A Few Important Points To Consider:
- Increasing debt to equity (As per CEO TV Narendran: Tata steel is aiming to lower key debt ratio as it expands in India in FY25. ₹17,000 CR capped is aimed at India’s domestic demand)
- Decreasing ROE: Decreased efficiency in utilisation of shareholder’s funds
- Sales more than market cap
- Promoter decreasing holding: Promoters reducing their holdings in various companies.
Note: TATA has guided for higher coal costs across most of the geographies due to higher coal prices in the last few months. However, the use of blended coal would help the company limit the cost increase.
Why Listed Companies Prefer Non-Convertible Debentures Route For Fundraising?
Faster and Less Complex:
Reduced Time: Private placements involve a smaller pool of pre-selected investors, streamlining the process and regulatory approvals compared to a public issue requiring SEBI (Securities and Exchange Board of India) approval and prospectus development.
Lower Costs: Companies can avoid the significant costs associated with public offerings, such as underwriting fees, marketing expenses, and legal fees.
Targeted Investor Pool:
Tailored Terms: Companies can negotiate terms with specific investors, potentially offering higher interest rates or flexible maturities that might not be feasible in a public issue.
Creditworthiness Assessment: In a private placement, companies can assess the creditworthiness of potential investors, potentially mitigating risks associated with unknown retail investors in a public offering.
Investor Relations: The private placement allows companies to build relationships with institutional investors who can be a source of future funding and strategic guidance.
Launch your Graphy