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* Tata Steel (TATA) reported in line operating performance aided by improved ASP for India business, higher volumes, lower coking coal consumption cost and better operating efficiencies during 4QFY23.

* TATA’s standalone revenue was down 7% YoY/up 13% QoQ at INR343b, in line with our estimate of INR329b. Standalone EBITDA declined 34% YoY/up 58% QoQ at INR81b (14% above our estimate of INR71b).

* Standalone ASP improved INR2,453/t QoQ to INR68,826/t and EBITDA/t improved INR5,085/t QoQ to16,326 (6% above our estimate of INR15,335).

* APAT was down 40% YoY/up 74% QoQ to INR47b (13% higher). The QoQ improvement was led by higher volumes, lower coking coal consumption cost, lower freight & handling charges, and lower depreciation that was partially offset by higher interest cost, increase in forex impact, higher royalty expense and higher tax.

* Tata Steel Europe (TSE)’s revenue was higher than our estimates by 15% at INR220b (down 16% YoY/up 6% QoQ). However, TSE posted an operating loss of INR16b. The increase in loss was due to lower realizations, rise in iron ore cost and increase in employee cost at the Netherlands.

* TATA’s consolidated revenue was 9% above our estimate aided by higher realizations (1% above estimate) and volumes (8% higher). Consolidated revenue was down 9% YoY/up 10% QoQ at INR630b. EBITDA was in line with our estimate and was down 52% YoY/up 78% QoQ at INR72b in 4QFY23. TATA posted a profit of INR17b (26% miss) during the quarter.

* The miss in APAT was due to higher finance cost, higher taxes and lower other income in 4QFY23.

* Consolidated EBITDA/t was down 51% YoY/up 64% QoQ at INR9,279.

* During FY23, revenue stood at INR2,434b (flat YoY), EBITDA came in at INR323b (-49% YoY) and APAT stood at INR86b (-79% YoY).

* Gross debt reduced INR28b to INR849b (v/s INR876b in 3QFY23) and net debt stood at INR679b. Net debt/EBITDA came in at 2.07x.

Highlights from the management commentary

* Indian steel demand is resilient; there is a strong demand from sectors such as transportation, industrial construction, infrastructure and commercial real estate.

* Standalone realizations should be higher by INR1,000-1,500/t in 1QFY24E. Coking coal consumption cost is expected to be higher by USD10-15/t in 1QFY24 and the benefit from lower coking coal prices should reflect from 2QFY24 onwards. Realizations in European operations are likely to be higher by GBP15/t in 1QFY24.

* Volumes for domestic as well as TSE are expected to be lower for 1QFY24.

* Full benefit of the 5mt Kalinganagar expansion will accrue from FY26 onwards. As TSE has hedged its natural gas position, it will take another two quarters for the benefit to accrue from lower natural gas prices.

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