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TATA posted above estimate earnings on all fronts aided by increase in realisation/t coupled with lower CoP. It reported adjusted Consol EBITDA of Rs72.3bn, up 165% QoQ (CentrumE: Rs56.4bn). The Adj operating profit in India was above expectation at
Rs83.2bn up 75% QoQ (CentrumE: Rs65.7bn) on account of higher volume by 8% QoQ and spreads of Rs16,703/t (up 61% QoQ) which in turn due to higher steel prices and lower coking coal cost. While Europe reported EBITDA loss of USD204mn (CentrumE: EBITDA loss of USD223mn). Management cited operational and financing challenges in UK business and hence accounted impairment loss of Rs10bn during the quarter. In Q1FY24, standalone margins is expected to remain flat whereas Europe to improve on account of higher prices. We increase our India volume estimate by 2% and expect Europe to be EBITDA positive in FY24 resulting 12% rise in estimated EBITDA. Also, rolling over to FY25, we revise our target price to Rs133/sh (Earlier: Rs118). We value India business at 6x FY25E EV/EBITDA & Europe and Others at 4x FY25E EV/EBITDA. Reiterate BUY.

India: Higher spreads lead by increase in volume & realisation and lower CoP

Tata Steel India’s adj EBITDA at Rs83.2bn, was up 75% QoQ and adj EBITDA/t at Rs16,703, up Rs6,326/t (61%) QoQ due to higher steel realisation (up Rs2,244/t QoQ) and higher operating cost (up Rs2,217/t) coupled with decrease in coal cost. Tata Long products breakeven during the qurter after NINL acquisition. Overall, Indian subsidiaries reported EBITDA profit of Rs55bn (vs Q3 loss of Rs23bn) primarily due to volume ramp up at NINL and gain from decline in raw material cost. Management guided steel realisation to improve by Rs1000?1500/t, USD10/t increase in coal cost in Q1FY24 and decrease of USD25/t in Q2FY24, which is margin accretive.

Europe: EBITDA to breakeven in Q1FY23
Europe business reported EBITDA loss of Rs16.4bn (EBITDA/t of negative USD94/t; flat QoQ). The Netherland plant is shut for relining its blast furnace till August 2023. It currently has build?up 0.7mt to offset the closure and increase in steel price to benefit in Q1FY23 The EBITDA is expected to breakeven in near future. The fall in natural gas cost to benefit from H2FY24 onwards owing to 75% hedging position which will be reversed in due course of time. Management booked impairment loss of Rs10bn for UK business citing operational and financing challenges. Further, upstream assets are near end of life cycle and hence decision on going concern need to be taken in next 12?18 months. On closure it will have to bear cost of >GBP100mn.

Maintain BUY with TP of Rs133
Tata steel profitability is expected to remain solid amid strong domestic demand and moderation in raw material prices. Besides, in India it has commissioned 6mtpa pellet plant and 2.2mtpa CRM facility, while at Netherlands upgraded CRM which will enhance product mix portfolio and earnings as well. Further NINL is expected to start contributing to overall volumes in FY24 while major contribution from Kalinganagar Phase 2 expansion is expected to reflect in FY25. We expect release of working capital in Q1FY24 especially in Europe. We estimate TATA to deleverage by USD1bn in FY24. We do not foresee any further major acquisition in near future. We maintain BUY with TP of Rs133

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