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Tata steel reported consol. EBITDA at INR62.4bn, significantly ahead of JMfe INR49.5bn. The beat was largely on account of higher than expected realisations. India business reported a marginal decline in earnings (INR16 k/t) QoQ as higher raw material costs were partially offset by higher realisations. Europe margins remained flat (-US$96/t) as increase in realisation was offset by lower volumes /elevated RM costs. The company delivered a profit of INR6.7bn during the quarter. Net debt during the quarter increased sequentially to INR714bn (up INR36bn QoQ) on account of higher working capital requirement.  

Key takeaways from the call are – 1)  realisations across India / Europe to decline by  INR3.1k/t and EUR35-40/t in 2QFY24 2) coking coal cost across India and Europe is expected to come lower by ~USD50/t in 2Q 3) Kalinganagar capex progressing on track with BF commissioning expected by March’24 4) 2.2 MTPA CRM complex is being progressively commissioned with CAL & CGL lines work underway 5) BF 6 (Netherlands) relining expected to be completed by end 1H 6) Netherlands business likely to turn profitable in 2H driven by lower energy costs; UK losses to reduce  7) Net Debt/EBITDA target maintained at 2-2.5x with deleveraging target of US$1bn annually  Tata steel plans to increase capacity to ~40 mn tons by FY30, with immediate focus on Kalinganagar and NINL. Lower losses in Europe during 2H driven by declining energy costs and strong Indian margins remain key triggers. Re-iterate BUY. 

* Higher than expected realisation lead to beat in margins: Tata Steel India standalone (incl. BSL) EBITDA came at INR74bn implying a blended EBITDA/t of INR16k (JMfe INR 13.1k), a sequential decline of 4.1% primarily on account of higher RM cost. PAT stood at INR43.2bn (vs. INR49.1bn in 4Q23). TSLP reported a 18.3% QoQ increase in revenues to INR35.7bn, driven by ramp up at NINL (currently operating at ~1mtpa). EBITDA came at INR1.6bn.  

* Europe profitability remains impacted by elevated RM cost: TSE reported an EBITDA loss of USD191mn vs EBITDA loss of USD200mn in 4Q. EBITDA/t stood at negative USD96 in 1Q vs negative USD92 in 4Q. The margins were flat QoQ as rise in realisation was offset by lower volumes/elevated RM costs. The buy-in transaction for liabilities of British Steel Pension Scheme has been completed, derisking Tata Steel UK. The company has also cautioned on the ability of UK business to remain a ''going concern’’ amidst potential economic downturn in Europe and adequacy of financial aid offered by the government.

* Growth capex on track: Work on 5mtpa expansion at Kalinganagar and 0.75mtpa EAF at Punjab is progressing on track. The company began production of pellets at the 6MTPA plant at Kalinganagar. 2.2 MTPA CRM complex is being progressively commissioned with CAL & CGL lines work underway. The planned relining of BF6 at Tata Steel Netherlands commenced in April leading to lower crude steel production. The company continues to remain focused on cost optimisation, operational improvements and working capital management to maximise cashflow. 

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