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Results Synopsis

Tata Steel's Q2FY25 performance was above the consensus expectations, primarily driven by volumes and falling coking coal prices, which offset the declines in NSR on a QoQ basis. Net revenue from operations decreased by 1.6% QoQ and 3.2% YoY, with EBITDA down 8.3% QoQ and up 43% YoY. Raw material costs were higher on a standalone basis due to change in value of chrome ore inventory.

The company’s Kalinganagar 5.0 mtpa brownfield expansion remains on schedule, with the CRM complex addin annealing lines expected to be commissioned soon. Tata Steel is also advancing its expansion plans at the NINL production site as part of its broader strategy to achieve its Indian capacity targets for FY2031.

In Europe, the performance saw losses peaking in Q2FY25 due to TSUK blast furnace shutdowns, poor demand seen in the Netherlands and falling NSR. TSN saw an increase of deliveries on a QoQ basis by 2% with the BF relining now complete – the same trajectory is expected to continue.

Port Talbot transition advances while Kalinganagar 5.0 mtpa brownfield expansion ramps up

Tata Steel’s current operational capacity in India stands at 26.60 mtpa, which includes the 5.0 mtpa brownfield expansion at Kalinganagar. This expansion is expected to reach full ramp-up within the next few quarters. The 2.20 mtpa CRM complex is adding galvanizing and annealing facilities, which will contribute to an improved product mix by increasing the share of VAP thereby enhancing realizations. Once fully operational, the Kalinganagar facility is expected to deliver significant cost efficiencies, with potential savings of up to Rs 4,000/t.

While the KP-II progresses, the company’s focus will be towards cost reductions on the European business which has been facing its challenges since the acquisition of Corus. The TSUK second blast furnace has been shut down and is now expected to undergo a transition period where only the downstream facilities are expected to provide the delivery volumes.

Valuation and View

With steel prices anticipated to have bottomed out and China’s stimulus measures expected to benefit the steel sector and likely boost steel prices, we expect an improvement in steel spreads from the lows seen during H1FY25.

We project Revenue/EBITDA growth for Tata Steel at a CAGR of 8%/26%, over FY25- 27E. We value Tata Steel on a SOTP basis to arrive at our revised target price of Rs 157/sh.

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