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Robust India business growth drives EBITDA beat 

Standalone performance

* 2QFY25 revenue stood at INR324b (-5% YoY/-2% QoQ), in line with our estimate of INR326. The QoQ decline was due to weak realization.

* Steel production stood at 5.27mt, whereas deliveries stood at 5.1mt (+6% YoY/+3% QoQ) against our estimate of 5.06mt. ASP stood at INR63,404/t (-11% YoY/-5% QoQ) vs. our estimate of INR64,325/t.

* EBITDA stood at INR66b (-4% YoY/-2% QoQ), better than our estimate of INR59b, thanks to lower input costs. EBITDA/t stood at INR12,935 (-9% YoY/- 6% QoQ) vs. our estimate of INR11,705.

* APAT stood at INR36b (-20% YoY/flat QoQ) against our estimate of INR33b.

Consolidated performance

* Sales volume stood at 7.52mt (+6% YoY/+2% QoQ) against our estimate of 7.45mt during the quarter.

* Revenue came in at INR539b (-3% YoY/-2% QoQ), in line with our estimate of INR520b. The QoQ decline was attributed to weak realization in India and the Netherlands. Blended ASP stood at INR71,682/t (-9% YoY and -3% QoQ), in line with estimates.

* EBITDA stood at INR55b (+29% YoY/-17% QoQ) against our estimate of INR47b, aided by lower-than-expected costs (lower coking coal costs). 2Q EBITDA was adjusted by excluding forex gains of ~INR7b. EBITDA/t was INR7,343 against our estimate of INR6,293 in 2QFY25.

* 2Q APAT stood at INR4.5b (-35% YoY/-66% QoQ) vs. our estimate of INR229m loss.

* For 1HFY25, revenue was at INR1087b (-6% YoY), EBITDA came in at INR122b (+29%), and APAT stood at INR18b (+34% YoY).

* Net debt stood at INR888b in 2QFY25 vs. INR929b in 1QFY25. The net debtto-EBITDA ratio was at 3.41x as of 2QFY25.

European operations

* Consolidated steel deliveries stood at 2.2mt (+13% YoY/+3% QoQ) against our estimate of 2.15mt.

* Revenue stood at INR206b (+2% YoY/-2% QoQ) against our estimate of INR196b. The QoQ decline was due to fall in steel NSR given subdued demand dynamics.

* EBITDA loss stood at INR13.4b (vs. our est. of INR14b) as compared to loss INR5b in 1QFY25. The rise in losses was due to weak NSR and higher costs related to emission, consumables and bulk gas.

* EBITDA loss per ton stood at USD75 in 2QFY25 against USD28 in 1QFY25.

* The management expects the UK business to break even by 1QFY26 (Jun’25), driven by a reduction in employee and other costs.

Highlights from the management commentary

* The company increased prices in Oct’24 for both flat and longs products.

* The management guided NSR to be lower QoQ by INR2,000/t in 3QFY25. As Jul’24 prices were high, 3Q average should be lower than 2Q despite the price hike. 7 November 2024 2QFY25 Results Update | Sector: Metals Tata Steel 8 November 2024 12

* Coal costs (on a consumption basis) for India operations are likely to be lower by USD20/t QoQ. In the Netherlands, coal costs are anticipated to decline by USD10/t QoQ in 3QFY25.

* ASP for the UK operation may fall by GBP45-55/t QoQ, whereas the Netherlands could see GBP70/t QoQ reduction in 3QFY25.

* Iron ore is expected to be lower by USD10/t for the Netherlands operation.

* Losses in Europe seem to have bottomed out and the company expects UK operation losses to reduce gradually in the coming quarters

Valuation and view

* India business posted a decent performance, driven by lower coal costs. Domestic demand is expected to improve in 2H, with rising govt. spending and construction activities.

* The management expects EBITDA losses from UK operations to start reducing from 3QFY25 onward, which, along with capacity ramp-up in the Netherlands and favorable market conditions, should boost overall EBITDA performance of its European operations.

* Though there are near-term challenges related to high imports and lower realizations, the long-term outlook remains strong for TATA. While India business is expected to continue its strong performance, improving performance in Europe business would support overall earnings. We have reduced our revenue/EBITDA estimates for FY25 by 3%/2% and largely retained our estimates for FY26/FY27. TATA is trading at 7.2x FY26E EV/EBITDA and 2.0x FY26E P/B. Reiterate Neutral with an SOTP-based TP of INR160.

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