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Result Synopsis

Tata Steel’s Q3FY24 performance came in above the consensus estimates on account of better cost mix especially on the coking coal front. The European operations, however, continue to remain a drag with the heavy-end loss making assets in UK continuing to bleed the company on the cash front. In the midst of the Q3FY24 results, the focus was on the company’s plan to restructure it’s UK operations which have been financially destructive on the company’s performance. The company announced its restructuring plans over the last week and stated that the two blast furnaces in UK will be shut down in a phased manner by the end of CY 2024. The first blast furnace and coke oven are expected to shut down mid-2024 and the second one will see the same fate by the end of 2024. During the year, the company plans to continue its operations at the UK plants as is which would continue to be a cash-loss business. The positive out here is that the relining at the Netherlands facility will be completed by the end of January and the plant will again be up and running thereby providing improved quantities in terms of production.

On the results front, the company performed tremendously beating margin estimates despite the overhang of the European operations. The company reported an EBITDA margin of 11.3% (vs 7.7% in Q2FY24 and 7.1% in Q3FY23). The margins grew on the back of better volumes and better raw material utilization despite coking coal prices rising globally. The top-line remained flat sequentially as the global and domestic steel prices did not see much movement.

In terms of the operational performance, the consolidated production stood at 7.58 mt, rising 3.7% on a QoQ basis and remaining flat on a YoY basis. The deliveries for the quarter came in at 7.15 mt, a 1.1% rise sequentially and remaining flat on a YoY basis.

Production Highlights

The company reported a consolidated steel production of 7.58 mt in Q3FY24, a 3.7% rise from Q2FY24 and a flattish trend as compared to Q3FY23.

Consolidated steel deliveries came in at 7.15 mt, a mere 1.1% growth on a QoQ basis and flat on a YoY basis.

Consolidated EBITDA/t saw a rise from Rs 5,869/t in Q2FY24 to Rs 8,035/t in the current quarter despite facing challenges on managing the rising cost of coking coal.

Valuation & View

We retain our target price for Tata Steel at Rs 153/sh on a SOTP valuation basis and have an ADD recommendation for the company. We see Tata Steel Ltd to be rightly positioned in the Indian steel space, growing strongly with upcoming capacities and with relief on the European business. The company has been using leaner blends of coking coal thereby safeguarding themselves from the price volatility in coking coal over the recent months. We expect this trend to continue and be a good positive for the company on sustaining their margins going forward.

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