Tata Steel falls over 3% on rising debt worries

Tata Steel shares fell more than 3 per cent on Wednesday after the company's third quarter profits lagged estimates. Tata Steel posted a net profit of Rs 500 crore against StarMine's estimates of Rs 751 crore as high costs in its main European market squeezed margins. (Read earnings copy)

Debt worries also weighed on stock, analysts said. Tata Steel's consolidated net debt rose 9 per cent sequentially to Rs 70,100 crore due to capex. Higher working capital requirements in Corus pushed debt further. December quarter consolidated net debt now higher than March 2014 end forecast.

CLSA, which maintains its sell call on Tata Steel, said the rise in consolidated debt is a key negative.

Credit Suisse said the stock looks expensive given the uncertainty around China and maintained its underperform rating on Tata Steel.

Tata Steel was the top loser on the 50-share Nifty benchmark. As of 10.15 a.m., Tata Steel shares traded down 2.9 per cent at Rs 378.75 on the BSE in a Mumbai market that traded up 0.6 per cent.

Europe is Tata Steel's biggest market and production centre, following its $13 billion acquisition of Britain's Corus in 2007 that gave it a foothold in the region. But the company has struggled to reap benefits from the deal because of Europe's weak economic conditions over the past six years.

Tata Steel Europe needs to import both iron ore and coking coal from outside and that plus continued high energy costs have hurt margins.

Tata is the second-largest steelmaker in Europe, which accounts for more than 60 per cent of its total annual capacity of 29 million tonnes. The company said European delivery volumes rose 6 per cent from a year earlier to 3.19 million tonnes for the quarter and operating profit also improved, but the pace of improvement been slower than expected.

Quarterly profit from Tata Steel's domestic business jumped 45 per cent from a year ago to Rs 1,519 crore.


(With inputs from Reuters)