IGI Logo

Europe performance a drag; Indian operations steady

Tata steel reported consol. EBITDA of INR41.5bn, 8% lower than JMfe of INR45bn. The under-performance was largely on of account significant losses in Europe amidst steady Indian operations. India business reported marginal decline QoQ in EBITDA/t to INR13.4 k/t on back of lower realizations, partially offset by lower coking coal cost. Europe continued to report EBITDA loss of USD167/t vs. loss of USD96/t in 1Q due to relining of BF in Netherlands. The company reported net loss of INR62bn after providing for one-off provisioning (UK) of INR68bn. Net debt during the quarter increased to INR770bn (up INR53bn QoQ) on account of weak performance.

Key takeaways from the call are – 1) Expected coking coal price movement (a) India : +USD11/t (b) Netherlands: (-)USD60/t (c) UK: (-)USD20/t 2) Netherlands BF likely to be operational by Nov end & expect to be EBITDA positive by 4Q aided by lower energy cost in 2H 3) Capex of £750 mn (of total £1.25 bn) likely to start from 2H24 and spread over 4 year period of which 20% to be spent after plant being fully operational. 4) Management endeavour is to be cash break even in UK during the transition to EAF. The sector awaits steel price increases in the back drop of recent sharp hikes in coking coal and iron ore costs. In the meanwhile, spot spreads continue to be under pressure. Maintain BUY.

* Steady performance by Indian operations- likely to continue: Tata Steel India standalone (incl. BSL) EBITDA came at INR64.5bn implying a blended EBITDA/t of INR13.4k/t (JMfe INR 13.9k/t), a sequential decline of 3.6% primarily on account of lower realizations offset by RM costs. Loss was primarily due to provisioning worth INR129.5bn for EAF based decarbonisation project and UK restructuring, adjusting for which PAT stood at INR41.6bn.

* Europe losses to trend down in 2HFY24: Company now reports UK and Nethrland operational parameters seperately. TSE reported an EBITDA loss of USD302mn vs EBITDA loss of USD191mn in 1Q. EBITDA/t stood at negative USD167/t in 2Q vs negative USD96/t in 1Q. Within european operation TSE UK dragged overall profitability with EBITDA loss of INR13.7bn vs loss of INR4bn in 1Q (~3x QoQ) driven by lower realizations. Further, company plans to continue operation in downstream rolling mills while transitioning to EAF in UK. Management expects 2H to be better driven by lower operational costs and expects to be cash flow positive during transition.

* Growth capex on track: Company incurred capex of INR45.5bn in 2Q and is well on track for operationalizing Kalinganagar BF which is likely to commission within 6 months; 2nd billet line is already in operation along with CRC samples being sent to OEMs for approval while deliveries to commence soon. Further company plans to invest £1.25bn for scrap based EAF facility in Port Talbot, UK (with government grant of £500mn). Company also converted loan to T Steel Holdings Pte. of USD4.1bn into equity based on fair valuation of shares and consequently recorded at INR342bn in form of equity investments in the standalone entity

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361