EDEL:- Annual Report Analysis - Tata Steel

Tata Steel’s annual report highlights another year of healthy cash flows from standalone operations. Tata Steel Europe’s (TSE) cash flows were supported by increased debtor securitisation by Proco, a step-down subsidiary of Tata Steel, lower raw material inventories on account of reduced cost of coking coal and iron ore. Actuarial losses on pension liabilities stood at INR22.3bn, which complying with IFRS principles were charged through reserves. The company’s cash contribution to pension funds stood at INR15.1bn, while the charge recognised through P&L was INR 5.8bn. Borrowing additional INR7.8bn through hybrid securities continued during the year, interest cost on which skirts P&L.  

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TSE’s operating performance deteriorates

Revenues for subsidiaries primarily comprising TSE grew 10.8% from INR893.6bn in FY11 to INR989.6bn in FY12. EBIDTA margins, however, dipped significantly from 4.4% in FY11 to (0.9) % in FY12.

TSE’s cash flows supported by debtor securitization via ProCo

Tata Steel through its step-down subsidiary ProCo continued to securitise TSE’s debtors. The extent of which seems to have increased during the year.

Pension losses continue; actuarial losses charged through reserves

During FY12, TSE’s pension plan incurred actuarial loss of INR22.3bn, which complying with IFRS principles have been charged directly through reserves. The company’s cash contribution to pension plan stood at INR15.1bn; however, expenses charged through P&L were meager INR5.8bn.

DTA not recognised for subsidiaries at TSE

DTA on unabsorbed losses have dipped during the year despite TSE posting losses. We believe that the company has not recognised any DTA on losses incurred during the year. Usually, a DTA is not recognised when there is no virtual certainty of recoverability of losses. 

Loans from perpetual hybrid securities increases; interest skirts P&L

Tata Steel during FY12 raised perpetual hybrid securities of INR7.8bn taking the total borrowing through the instruments to INR22.8bn; interest is payable on them @11.5-11.8%. However, the same is charged below PAT, consequently profit for the year is higher by INR1.7bn.

Analysis Beyond Consensus - Annual Report Analysis - Tata Steel

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