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Strength in steel prices augurs well…

Tata Steel reported a healthy operational performance in Q4FY21. In Q4, topline of consolidated operations was at | 49977 crore (up 39% YoY, 19% QoQ), higher than our estimate of | 47745 core. Tata Steel India’s delivery volumes for Q4FY21 were at 4.67 million tonnes (MT), up 16% YoY, flattish QoQ.

For Q4FY21, Tata Steel India’s domestic deliveries increased 22% YoY to 4.16 MT while export volume for the quarter was at 0.51 MT (exports accounting for ~11% of overall deliveries for quarter). For Q4FY21, Tata Steel European operations deliveries improved 3% YoY, 17% QoQ to 2.47 MT.

Consolidated EBITDA for Q4FY21 was at | 14184 crore (up 48% QoQ, 196% YoY), in line with our estimate of | 14052 crore. Consolidated EBITDA margin came in at 28.4% (22.8% in Q3FY21, 13.3% in Q4FY20). In Q4FY21, aggregate exceptional charge was at | 991 crore. Hence, consolidated PAT was at | 7162 crore, up 79% QoQ (our estimate: | 7872 crore).

Standalone operations post healthy performance…

Tata Steel standalone operations reported EBITDA/tonne of | 27775/tonne, higher than our estimate of | 26000/tonne (EBITDA/tonne of | 20070/tonne in Q3FY21 and | 12531/tonne in Q4FY20). Q4FY21 performance of standalone operations was aided by healthy uptick in blended realisation. Going forward, for standalone operations, we model EBITDA/tonne of | 24000/tonne for FY22E (upward revised from | 18000/tonne earlier) and | 20000/tonne for FY23E (upward revised from | 17250/tonne earlier). For FY21, EBITDA/tonne of standalone operations was at | 17613/tonne.

Debt reduction drive augurs well…

Tata Steel’s consolidated net debt declined from | 104779 crore as on March 2020 to | 75389 crore as on March 2021 (total debt repayment during FY21 was at | 29390 crore while for Q4FY21 was at | 10781 crore). For Q4FY21, Tata Steel’s consolidated free cash flow was at | 8826 crore while for FY21 Tata Steel’s consolidated free cash was at | 23748 crore. Furthermore, Tata Steel’s consolidated operations net debt to EBITDA improved to 2.44x while net debt to equity improved to 0.98x.

Valuation & Outlook

On the back of an increase in realisations both QoQ as well as YoY, Tata Steel’s Indian operations reported a healthy performance. For the quarter, the healthy performance of Indian operations aided the consolidated operations. Going forward, we model consolidated EBITDA margin of 24.8% for FY22E and 21.8% for FY23E (FY21 EBITDA margin was at 19.5%). The debt repayment drive also augurs well. We value the stock on an SoTP basis and arrive at a target price of | 1500 (earlier target price | 1150). We maintain our BUY recommendation on the stock.

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