Tata Steel: India remains ‘bright spot’ amidst sustained inflation, declining exports

Tata Steel says the outlook for India remains positive, led by a strong urban consumption and infrastructure spending. This comes at a time when demand in the US is seen growing at a moderate pace, and exports are expected to decline further with rise in protectionism and slowdown in global demand.

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Steel manufacturer Tata Steel has exuded confidence about India being a silver lining in the global market.

“India remains the ‘bright spot’ for global steel demand,” the Tata Group company has said in its annual report for FY22-23, released on June 14.

The company said the outlook for India remains positive, led by strong urban consumption and infrastructure spending.

This comes at a time when demand in the US is seen growing at a moderate pace, sustained inflation continues to pose a downside risk and when exports are expected to decline further with a rise in protectionism and a slowdown in global demand.

Tata Steel expects Indian steel demand to be robust, growing by 6.2 percent in FY23-24, supported by a strong GDP growth forecast, private consumption and government expenditure.

Around 85 percent of the company’s overall revenue comes from Indian operations, according to analysts.

Read more | Moneycontrol Pro Panorama | Tata Steel’s never-ending European nightmare

Strong demand from key steel-consuming sectors

Demand from key steel-consuming sectors, such as construction, capital goods, railways, and automotive, is expected to remain robust.

India’s capital goods sector is expected to benefit from the momentum in infrastructure and investment in renewable energy, while automotive and consumer durables are expected to maintain healthy growth, driven by sustained growth in private consumption, it added.

The approval process across industries, such as energy, automobiles, and packaging, is stringent and time-consuming and continues to be an entry barrier for new players.

This gives companies like Tata Steel an edge over others as they enjoy long-standing relationships with customers, Motilal Oswal Financial Services had pointed out in a note.

Besides, integrated steel players will continue to add capacity in FY23-24 and utilisation levels are expected to remain healthy at approximately 80 percent, the steelmaker said.

Read more | Explosion in blast furnace at Tata Steel’s Odisha plant injures 19 

India business sees improvement 

During the March 2023 quarter, the steel manufacturer’s profitability improved primarily on its India performance. India registered the highest annual crude steel production of 19.88 million tonnes (MT) and record deliveries of 18.87 MT.

India business witnessed a margin improvement from 15 percent to 22 percent, driven by improved realisations on a QoQ basis, compared to Europe, where margins were broadly similar, sequentially, as improvement in costs was offset by a drop in revenues.

The company decreased its net debt by Rs 3,900 crore in Q4 of FY23 to Rs 67,810 crore QoQ, because of a release in working capital.

A larger view is that although weak global demand remains a key concern, strong domestic demand and a likely decline in raw material costs in the coming quarters will continue to support earnings performance in the long term.

At 12:09 pm, shares of Tata Steel were up 1.9 percent on the BSE at Rs 113.2. The steelmaker’s scrip was the second biggest gainer on benchmark Nifty 5o index.

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