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Beat driven by Indian ops; UK losses to narrow

Tata steel reported consol. EBITDA of INR55bn, significantly higher than JMfe of INR48bn driven by strong performance in the Indian operations. India business witnessed a decline in realisations leading to a fall in EBITDA/t by INR0.8k/t to INR13.5k/t. Europe losses widened to USD75/t in 2Q as against USD28/t in 1Q. The company reported profit of INR2.8bn during 2Q. Net debt increased by INR66bn to INR888bn during 2Q primarily on count of higher capex at INR48bn.

Key takeaways from the call are – 1) Expected coking coal price movement in 3Q (a) India: (-) USD20/t (b) Netherlands: (-) USD 10/t coking coal and iron ore respectively 2) Expected net realisation movement in 3Q: (a) India (-) INR 2k/t 3) the company endeavors to cut UK losses by embarking on cost initiatives to the tune of GBP100/t fixed cost reduction 4) Kalinganagar phased commissioning started with additional 1.1mn tons volume expected in FY25E 5) Management endeavour is to make transition to EAF in the UK within 4 years. The commissioning of the phased expansion of 5mtpa at Kalinganagar remains on track with the blast furnace commissioned recently. Indian operations spread continue to remain healthy while UK losses have peaked in our view. Maintain BUY

* India operations continue to perform well: Tata Steel reported consol. EBITDA of INR55bn (-20% QoQ) driven by widening losses in European operations. India business EBITDA/ton came in lower by INR745/t QoQ due to lower realizations. In the quarter Corus continued to make losses with an EBITDA/ton of (-) USD75/t vs (-) USD28/t last quarter. Consol.PAT for the quarter stood at INR38.5bn vs INR38.2bn in 1Q. Net debt in the quarter stood at INR888bn due to high capex of INR48bn.

* Europe losses widened in 2Q: TSE reported an EBITDA loss of USD160mn vs loss of USD60mn in 1Q. EBITDA/t for TSE stood at (-)USD75/t in 2Q vs (-) USD28/t in 1Q mainly due poor performance in UK which was partially offset by Netherland operations. UK EBITDA came in at (–) INR15bn vs (-) INR9bn in 1Q mainly due to lower volumes. Netherlands EBITDA declined QoQ by 46% to INR2bn driven by lower realisation. The company closed down its blast furnace#4 and #5 in UK as it transitions to EAF route of operations.

* Corus losses peaked; cost initiatives to yield results hereon: The company guided for coking coal prices in 3Q to be(-) ~USD20/t and in Netherlands prices of coking coal/iron ore is likely to be down USD10/t respectively. The company also emphasized on its cost takeout initiatives where in it will reduce its cost in the UK by GBP100/t by 4Q as a result of the discontinuation of blast furnace at Port Talbot and will breakeven by June 2025. Capex for FY25 - FY26 expected to be light compared to the FY24-FY25. Currently 40% grant comes from UK govt quarterly and is currently engaged in discussions with Netherland government for decarbonisation capex.

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