Tata Steel Q4 Results: Net Profit Plummets 65% YoY, Board Recommends 360% Dividend; Do You Own?

Tata Steel announced its fourth-quarter results for fiscal 2023-24 (Q4FY24) on May 29, revealing a significant drop in consolidated net profit and a decline in revenue. The company's net profit fell by 64.8% to Rs 554.6 crore, down from Rs 1,566 crore in the same period last year. Revenue from operations decreased by 6.8% to Rs 58,687.3 crore, compared to Rs 62,961 crore in Q4FY23. The disappointing performance reflects the challenging market conditions and the impact of lower steel prices on the company's profitability.

Despite the challenging quarter, Tata Steel's CEO and Managing Director, TV Narendran, highlighted the company's resilience and strategic focus on the Indian market. "In India, which is a structurally attractive market, we have delivered improved margins and continued to expand our footprint in terms of volumes as well as product portfolio. Our domestic deliveries were best ever at around 19 million tons and were up nine per cent YoY with broad-based improvement across chosen market segments," he stated.

Tata Steel's net profit faced pressure due to lower steel prices and restructuring expenses associated with its loss-making operations. The decline in domestic steel prices was influenced by higher imports of finished steel from China. This led to a nearly 4% drop in the company's mainstay India business, which accounts for at least 62% of its overall revenue.

On the operational front, the company's earnings before interest, taxes, depreciation, and amortization (EBITDA) fell by 8.6% to Rs 6,600.7 crore from Rs 7,219 crore in the year-ago period. The EBITDA margin dropped slightly by 20 basis points to 11.3% compared to 11.5% in Q4FY23.

Tata Steel's board recommended a dividend of Rs 3.60 per ordinary (equity) share, which equates to 360% of the face value of Re 1 each. This dividend proposal is subject to shareholder approval at the annual general meeting (AGM) scheduled for July 15, 2024. If approved, the dividend will be paid on or after July 19, 2024, with June 21, 2024, set as the record date for determining eligible shareholders.

The board approved an investment of up to $2.11 billion (approximately Rs 17,407.50 crore) in T Steel Holdings Pte. Ltd (TSHP), a wholly-owned subsidiary. This investment, planned over 2024-25, aims to repay existing external debt and support restructuring costs at Tata Steel UK Limited.

Additionally, Tata Steel will convert $565 million (approximately Rs 4,661.25 crore) of debt held in TSHP into equity shares, maintaining 100% equity shareholding in TSHP post-conversion.

Tata Steel's board also approved the issuance of additional debt securities up to Rs 3,000 crore in the form of NCDs on a private placement basis. The board has authorized a committee of directors to finalize the details, including the timing and terms of the NCD issuance.

For the full fiscal year 2023-24, Tata Steel reported consolidated revenues of Rs 2,29,171 crore. EBITDA stood at Rs 23,402 crore, driven primarily by improved performance in India. The company spent Rs 4,850 crore on capital expenditure in the March quarter and Rs 18,207 crore for the entire year. Net debt stood at Rs 77,550 crore, while liquidity, including cash and cash equivalents, was Rs 31,767 crore.

The India segment reported revenues of Rs 1,42,902 crore for the full year, achieving its highest-ever crude steel production of approximately 20.8 million tons and deliveries of 19.9 million tons, marking a nine per cent YoY increase in domestic deliveries.

However, the UK and Netherlands segments faced challenges. The UK segment reported annual revenues of £2,706 million with an EBITDA loss of £364 million. The Netherlands segment had annual revenues of £5,276 million but recorded an EBITDA loss of £368 million, partly due to the reline of Blast Furnace 6, which was completed in February.

Tata Steel plans to start closing heavy-end assets in the UK in June and will invest in an electric arc furnace at Port Talbot, following extensive discussions with UK trade unions.

Despite a tough quarter, Tata Steel's focus on the Indian market appears strategic, given the country's robust steel demand. The planned capacity expansion at Kalinganagar and the increased focus on high-demand sectors like automotive steel are expected to drive future growth.

The investment in the Singapore unit and the restructuring efforts in the UK reflect Tata Steel's proactive approach to managing its global operations and optimizing its asset portfolio. The issuance of NCDs indicates a strategy to maintain financial flexibility and support ongoing investments.

Tata Steel's Q4FY24 results highlight the challenges faced due to market conditions and restructuring costs. However, the company's strategic initiatives, robust domestic performance, and planned investments position it well for future growth. As global steel markets stabilize, Tata Steel's focus on innovation, capacity expansion, and operational efficiency is likely to yield positive outcomes.

The share of Tata Steel ended Wednesday's trading session with minor cuts of 0.50% at Rs 174 per share on the National Stock Exchange (NSE). The stock has given returns of more than 62% in the last one year.