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Reduced losses in Europe drive beat; growth capex on track

Tata steel reported consol. EBITDA of INR70bn, higher than JMfe of INR62bn. The outperformance was largely on account of sharp reduction in losses in European operations. India business reported QoQ decline in EBITDA/t to INR15k/t driven by lower realisation. Europe continued to report EBITDA loss – albeit sharply lower losses at USD37/t vs. loss of USD178/t in 3Q due to improved spreads. The company reported profit of INR5bn during 4Q. Net debt during the quarter increased marginally to INR776bn. Key takeaways from the call are – 1) UK operations witnessed a one off gain of 51mn pounds on account of carbon credits 2) Expected coking coal price movement in 4Q (a) India: (-)USD10/t (b) Netherlands: (+) USD 24/t (c) UK iron ore: (+) USD10/t 2) Expected net realisation movement in 4Q: (a) India (+) INR 0.3k/t (b) UK: flat (c) Netherlands (+) £90/t 3) Netherland ops is expect to be EBITDA positive by 1QFY25 4) the company endeavors to cut UK losses by half in FY25E – EBITDA positive by 3Q 5) Kalinganagar phased commissioning started with additional 0.7 mt volume expected in FY25E 6) Management endeavour is to make transition to EAF within 4 years. Spot steel spreads have improved domestically driven by sharp reduction in coking coal prices. Maintain BUY.

* Healthy performance by Indian operations: Tata Steel India standalone EBITDA came at INR82bn implying a blended EBITDA/t of INR15k/t (JMfe INR 14.8k/t), a sequential decline of ~INR1.9k/t primarily on account of sharp drop in realisations. PAT came in at ~INR5bn vs INR6bn during 3Q.

* Europe losses to trend down in FY25E: TSE reported an EBITDA loss of USD77mn vs loss of USD345mn in 3Q. EBITDA/t stood at negative USD37/t in 4Q vs USD178/t in 3Q. Within european operation TSE UK dragged overall profitability with EBITDA loss of INR3.9bn vs loss of INR16.6bn in 3Q driven by improved spreads. Company plans to continue operating its downstream rolling mills while transitioning to EAF in UK with slabs to be procured from sister mills (i.e. from India or Netherlands). Netherland EBITDA to turn profitable in FY25E. Further, management anticipates cutting the losses from the UK operation in FY25E by half compared to the losses incurred in FY24.

* Growth capex on track: Company incurred capex of INR49bn in 4Q and INR180bn for FY24 and has started phased comissioning of the 5MTPA expansion at Kalinganagar. Further company has commenced production from 2.2 MTPA CRM facility in India (widest CRM in India) and has received approvals from OEM’s for CRC. Further company will close its blast furnance, coke ovens in UK and would invest £1.25bn for scrap based EAF facility in Port Talbot, UK (with government grant of £500mn). The company approved fund infusion of USD2.11bn in T Steel Holding, its wholly owned foreign subsidiary

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