Tata Steel likely to pip TCS on profitability
The steelmaker stands to benefit from demand-based rally in global steel prices
NEW DELHI: Tata Steel Ltd is set to emerge as the Tata group’s most profitable company this financial year, racing past Tata Consultancy Services Ltd, as it benefits from a demand-based rally in global steel prices spurred by the unlocking of economies worldwide.
Tata Steel’s smart turnaround, five years after it posted a fullyear net loss, poses one less worry for Tata Sons chairman Natarajan Chandrasekaran, for now, as the conglomerate looks to make itself future-ready— from combining the group’s consumer brands under a planned “super app”, to integrating its newest acquisition of loss-making national carrier Air India.
Chandrasekaran, whose term was extended by Tata Sons board for five years on Friday, oversees the sprawling group that comprises 30 companies across 10 verticals with a combined revenue of $103 billion in 2020-21.
Tata Steel’s net profit totalled ₹31,914 crore in the first nine months of this fiscal through March, higher than TCS’ ₹28,490 crore. Sustaining the run-rate, Tata Steel is expected to end the year with a higher profit than TCS, for the first time in 14 years.
Tata Steel’s net profit totaled ₹12,350 crore in FY08, more than double of ₹5,026 crore at TCS. That came at the peak of the last commodity cycle, and a period when Tata Steel paid $12.2 billion to buy Corus, the Anglo-Dutch steel maker.
Since then, Tata Steel’s journey in the past decade has been a rough ride as the company reported a full-year net loss on four occasions—FY13, FY15, FY16 and FY17. Analysts are, however, sceptical if Tata Steel can extend its stellar run in next fiscal year.
“Since we have crossed the peak cycle in steel, the price trajectory is downwards,” Vishal Chandak, an analyst at Motilal Oswal, wrote in a note dated 8 February. “Once the Olympics and para Olympics end, China may raise steel production and exports to boost the economy that has been throttled by: a) covid-related lockdowns, b) clear sky policy until Beijing Olympic games are over, and c) purported carbon reduction targets. We believe these measures may be relaxed if the Chinese economy continues to slide. This poses a risk to global steel prices.”
Last week, ArcelorMittal reported its highest profit in more than a decade, but the world’s second-largest steelmaker is penciling in slower growth this calendar year as it expects demand for steel to slow.
Still, Tata Steel remains confident. “We believe going forward prices will trend at a higher level compared to last 10 years,” said a spokesperson for Tata Steel.