Rating agencies are not optimistic about the domestic operation of Tata Steel as its margins are under pressure because of low pricing power in the Indian market.
Owing to slowdown in the economy and the resultant weakness in steel consumption, the pricing power of the company is restricted.
Therefore, rating agencies like Fitch and Moody’s assigned negative outlook to Tata Steel’s domestic operation despite rising revenue.
While the revenue of the group grew 1.2 per cent in Apr-Dec 2012, steel deliveries declined to 17.6 million tonne (mn t), from 18 mn t in the year-ago period. Also, its pre-tax profit declined 65 per cent during Apr-Dec 2012 from the corresponding period of last year.
The Indian operations have increased output but are experiencing margin pressure in the face of slower Indian GDP growth, rating agencies opine.
But rating agencies expect the company’s Indian and European operations to post strong numbers for the Jan-Mar 2013 quarter.
Total deliveries of Tata Steel India rose 13 per cent to 7.48 mn t for 2012-13 following the ramp-up of the Jamshedpur expansion. Following the relighting of the Port Talbot blast furnace in February, rating agencies expect Tata Steel Europe’s deliveries to have recovered to at least 3.5 mn t in Jan-Mar 2013 and to over 13 mn t for the year.
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