Tata Steel Ltd, a unit of the Tata Group, has warned of a hit to its profitability in the third quarter of the current fiscal year because of the closure of its captive iron-ore mines in Jharkhand and Odisha.
A ban on four of the company’s mines in Odisha and one mine in Jharkhand compelled it to curtail production by suspending operations of one of its blast furnaces at its Jamshedpur plant in Jharkhand, which was forced to operate below capacity for more than a month during the quarter.
“All the above factors have impacted the stability of operations, cost structure and profitability of the company during this quarter,” said the company in a statement to the stock exchanges on Monday.
Tata Steel said that it had recently ramped up production at its Jamshedpur plant following the resumption of mining from some of its mines in Odisha. The company did not specify the current level of production at its facility in Jamshedpur. Tata Steel added that it was in constant engagement with the state government of Jharkhand to resume mining operations in the state, which can further help the 9.7 million tonne per annum (mtpa) steel plant in Jamshedpur.
For the September quarter, Tata Steel reported a 59% increase in the standalone net profit to Rs.2,476.41 crore from Rs.1,558.67 crore in the year-ago quarter. The quarterly results, however, included a one-time gain of Rs.1,146.86 crore on account of the sale of land in Borivali in Mumbai.
Tata Steel has domestic steel capacity of 9.7 million tonnes per annum at Jamshedpur, and this was the first year in a 100 years when Tata Steel had to import iron ore.
“The company was impacted by issues veering around mining lease renewals which led to intermittent stoppage of mining operations leading to disruption in the end-use operations. Tata Steel imported iron ore for the first time,” said TV Narendran, MD, Tata Steel, India & SEA, in an email response.
“Tata Steel bought almost 2 million tonnes of expensive iron ore from outside its captive iron ore capacity which cost the company an additional Rs.2,500 per tonne. This translates into a hit of Rs.500 crore on bottomline but we are not sure if this will reflect in the numbers of the current quarter,” said an analyst with a domestic brokerage who did not wish to be named.
The analyst added that the hit to profitability may be a one-off, adding that the outlook for the next quarter and the next fiscal remains strong, as the captive mines of Tata Steel are slowly restarting.
In a 17 December research report, Sanjay Jain, senior vice-president–research, Motilal Oswal Securities Ltd, had said that Tata Steel’s margins were likely to come under pressure due to rising iron ore costs.
“Tata Steel’s margins had come under severe pressure from the dual impact of falling realization and rising iron ore costs during the last six months. The impact will be evident in 2HFY15 results. Resumption of iron ore mining will ease cost pressure,” said Jain.
Four of the company’s captive mines in Odisha—Joda West, Joda East, Kalamati and Bamebari—had been shut down since 15 November as the state government did not allow mining to resume. However, the mines eventually started on 15 December owing to an interim order from the high court of Odisha.
The Khondbond iron and manganese mine, which also serves the Jamshedpur plant, is un-operational since May 2014 and the application for its renewal will be taken up by the state government in February 2015.
Odisha met almost 10 mtpa of Jamshedpur plant’s iron ore requirement out of the total 14-15 mtpa required per annum.
Tata Steel said its Noamundi iron ore mine in Jharkhand is still suspended since September and an order to resume operations is expected from the state any time soon as the high court of Jharkhand has already directed the state government to allow the company to restart mining operations.
On Monday, Tata Steel shares closed at Rs.404.30, up 1.54%, while the benchmark Sensex index closed at 27,395.73, up 0.57%.
Source: Livemint
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