Tata Steel has set the alarm bells ringing on the ability of its UK business to remain a ''going concern’’ amidst potential economic downturn in Europe in the face of continuing uncertainty over the adequacy of financial aid offered by the Rishi Sunak-government.

A stress test conducted by the board of the company to assess the potential impact of the economic downturn on Tata Steel Europe Ltd found the mainland Europe business, centred around the Netherlands operations, has adequate liquidity to tide itself over the crisis but the UK business could be ‘‘adversely impacted".

“The outlook for Tata Steel UK Limited, a wholly owned indirect subsidiary of TSE, however, is expected to be adversely impacted towards meeting its liquidity requirements and accordingly with respect to its ability to continue as a going concern,” the company said in a note to the fourth quarter results.

Higher inflation, higher interest rates and supply chain disruption caused by the war in Ukraine were cited as the ‘‘external factors’’ to cause economic downturn in Europe which may impact the future business outlook for the UK and MLE value chain.

Tata Steel does not disclose the results of the MLE and UK separately. TSE posted Rs 1,641 crore EBIDTA loss in Q4Y23.

The note to the result also cited that there is uncertainty if the UK government supports the business adequately in its transition to green steel. It has been reported that the UK government offered £300 million aid which the Indian management found to be inadequate.

“The progress of discussions with the UK government is also being monitored closely given that based on the initial and subsequent discussions it remains uncertain whether adequate support for the decarbonisation strategy would be agreed.”

“Given the risks and challenges associated with the underlying market and business conditions, the uncommitted nature of available financing options and the uncertainty with respect to whether adequate government support would be agreed, there exists a material uncertainty surrounding the impact of such adversities on the financial situation of TSUK,” the note added.

However, the financial statements of TSE have been prepared as a going concern basis and there are indications that the parent, Tata Steel India, is not giving up.

Independent auditor Price Waterhouse & Co quoted the audit report of TSE which mentions that TSE has received a letter of support from its parent to refinance or repay credit facilities due to expire on or before June 2024.

Additionally, the parent has provided a letter of support to the UK business for access to £300 million of additional working capital, which is more than estimated to be required under a severe but plausible downside scenario over the next years.The letter added that it should not be construed as commitments of financial support.

Q4 net plunges 84%

Calcutta: Tata Steel beat the Street estimate posting a net profit of Rs 1,566.24 crore in the fourth quarter of the last fiscal on a consolidated basis even as it was down over 84 per cent from the same period of FY22.

The company swung back to profit in the Q4FY23 after posting a surprise loss in the preceding quarter of FY23.

After a record breaking profit of Rs 41,749.32 crore in FY22, Tata Steel’s net profit plunged to Rs 8,075.35 crore, down 80.6 per cent, in FY23 as margins fell across geographies.

Revenue from operations grew 10 per cent to Rs 62,962 crore in Q4FY23 driven by the Indian operations. The board of directors declared a dividend of Rs 3.6 per share (360 per cent) to the shareholders.

Commenting on the results, T.V. Narendran, chief executive officer and managing director of Tata Steel, said: “FY2023 saw our India crude steel production growing to around 19.9 million tonnes (mt), with a 65 per cent share of our overall volumes."

"Deliveries were in line with production with domestic deliveries growing 11 per cent YoY. The quarter also saw strong momentum with deliveries growing 9 per cent QoQ to 5.15 mt.”

Koushik Chatterjee, executive director and chief financial officer, informed that Tata Steel reduced leverage by Rs 3,900 crore in the fourth quarter of the fiscal.

The net debt of the company stands at Rs 67,810 crore.

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