Calcutta, Aug. 13: A non-cash write-down on the Mozambique coking coal asset, coupled with a higher tax incidence, has dented Tata Steel’s consolidated profit by 70 per cent in the first quarter of the current financial year.
Net profit slumped to Rs 337.33 crore in the April-June quarter against Rs 1,139.01 crore in the year-ago period though there had been an improvement in the operating environment in all geographies, the company said.
Total tax expense rose to Rs 1,080.41 crore in the reporting quarter from Rs 351.39 crore in the same period of 2013-14.
Tata Steel took a non-cash write-down of goodwill and other assets related to Benga coal mines in Mozambique worth Rs 1,577 crore during the quarter.
In August 2007, Tata Steel decided to buy a 35 per cent stake in the Benga project in Mozambique along with Riversdale Mining, which bought 65 per cent.
In 2011, Riversdale sold its stake in the Benga mine to Rio Tinto for $4 billion. Tata Steel held on to its stake.
By January 2013, Rio said it was taking a hit of $3 billion on the acquisition. The company gave two reasons for the impairment of the asset: a lower coal reserve than expected and a logistic challenge to bring the coal from the mines to port for shipping to customers.
Tata Steel desisted from writing down its investment in the asset at that time.
In July this year, Indian Coal Ventures (ICVL), a consortium of Indian state-run companies, bought Rio Tinto's stake in the Benga coal assets. ICVL paid only $50 million, a fraction of the cost Rio had incurred for the stake.
The cost of Tata Steel’s write-down on the Benga asset during the reporting quarter was substantially mitigated by the profit made by the company by selling its 50 per cent share in Dhamra Port to Adani Group.
Tata Steel booked a profit of Rs 1,270.21 crore on account of this sale.
The Odisha port was an equal joint venture between Tata Steel and L&T.
The company’s net sales rose to Rs 36,143.27 crore in the quarter under review from Rs 32,558.61 crore a year ago.
Finance costs shot up to Rs 1,252.37 crore from Rs 992.44 crore a year ago.
Tata Steel sold 6.46 million tonnes of steel in the first quarter, up from 6.08 million tonnes a year earlier.
“Operating performance improved across all geographies as group EBITDA (earnings before interest, taxes, depreciation and amortisation) for the first quarter ended June 30, 2014 rose to Rs 4,325 crore from Rs 3,755 crore the year before,” the company said in a statement.
“Tata Steel’s profitability has improved in key geographies with Indian and European operations registering EBIDTA margin expansions compared with last year. Despite significant capex spend during the quarter, mainly for the greenfield project in Odisha, we were able to reduce net debt,” Koushik Chatterjee, group executive director (finance and corporate), said in a statement.
In the April-June quarter, mining operations in Odisha were suspended for a fortnight on interim orders by the Supreme court.
Pending renewal of the mining leases, the state government issued “express orders” that enabled Tata Steel to resume its mining operations within the quarter in two iron ore mines and two manganese mines in Odisha.
However, the “express orders” for the Khondbond Iron Ore Mines and Sukinda Chromite Mines are still pending with the state government.