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Reports highest ever quarterly consolidated EBITDA…

About the stock: Tata Steel Group is among the top global steel companies with an annual steel production capacity of ~34 million tonnes per annum (MTPA).

* Tata Steel (TSL) is one of the world’s most geographically diversified steel producers, with operations and commercial presence across the world

* TSL has been a part of the DJSI emerging markets Index since 2012 and has been consistently ranked among top five steel companies in the DJSI Corporate Sustainability Assessment since 2016

Q1FY22 Results: Tata Steel reported a steady performance for Q1FY22.

* Consolidated topline for the quarter was at | 53372 crore (up 110% YoY, 7% QoQ), broadly in line with our estimate of | 51636 crore. Consolidated EBITDA for the quarter was at | 16111 crore (up 14% QoQ), in line with our estimate of | 16186 crore

* Consolidated EBITDA margin for the quarter was at 30.2% compared to 28.4% in Q4FY21 and 2.1% in Q1FY21 (our estimate of 31.3%). Ensuing consolidated PAT for the quarter was at | 9768 crore, up 36% QoQ, higher than our estimate of | 9136 crore

* Standalone operations reported an EBITDA/tonne of | 35558/tonne, higher than our estimate of | 33000/tonne (EBITDA/tonne of | 27775/tonne in Q4FY21, | 5920/tonne in Q1FY21). European operations reported EBITDA/tonne of US$89/tonne, marginally lower than our expectation of US$100/tonne. Tata Steel BSL reported EBITDA/tonne of | 27856/tonne, broadly in line with our estimate of | 27500/tonne

What should investors do?

Tata Steel share price has grown by ~3.5x over the last 12 months (from ~| 413 in August 2020 to ~| 1461 levels in August 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We value TSL at | 1750, based on SoTP valuation

Key triggers for future price performance:

* Tata Steel is aiming to double Indian operations steel production capacity to 40 million tonnes (MT) by 2030. The doubling of domestic production capacity would be done through both organic as well as inorganic route

* India’s share in Tata Steel’s overall consolidated production capacity has risen from 29% in 2010 to 57% in 2020 and is likely to reach 73% by 2030

* For FY22E, Tata Steel is targeting over US$2 billion gross debt reduction wherein it will prioritise offshore debt repayment

Alternate Stock Idea: In our ferrous metal sector coverage, we also like JSW Steel.

* JSW Steel is one of the leading integrated steel companies in India, which has a strategic collaboration with global leader JFE Steel of Japan

* BUY with a target price of ₹ 850

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