IGI Logo

Beat on earnings; Tata EU performance set to improve further Standalone performance

* Revenue stood at INR366b (YoY/QoQ: -4%/+5%) against our estimate of INR359b, primarily driven by improved volumes, which was offset by muted realization. ASP stood at INR67,592/t (YoY/QoQ: -15%/-5%) as compared to our estimate of INR68,961/t during the quarter.

* EBITDA stood at INR80b (YoY/QoQ: -7%/-2%), against our estimate of INR74b. The beat was due to lower raw material costs. EBITDA/t stood at INR14,846/t (YoY/QoQ: -18%/-12%), against our estimate of INR14,132/t during the quarter. APAT for the quarter stood at INR47b (YoY/QoQ: - 4%/+1%), 27% above our estimate of INR37b.

* In 4QFY24, domestic steel production stood at 5.24mt (YoY/QoQ: +16%/ +2%) and sales at 5.42mt (YoY/QoQ: +13%/+11%), which were in line with our estimate. Consolidated performance

* Consolidated steel production stood at 7.92mt (YoY/ QoQ: +2% /+4%) and sales stood at 7.98mt (YoY/QoQ: +3% / +12%).

* Revenue came in at INR587b (YoY/QoQ: -7%/+6%), against our estimate of INR612b. The decline in revenue is attributed to lower blended ASP, which stood at INR73,543/t (5% lower than our estimate) in 4QFY24.

* EBITDA stood at INR66b (YoY/QoQ: -9%/ +5%), against our estimate of INR60b, on account of lower-than-expected cost. The company posted an EBITDA/t of INR8,271/t, which was 10% higher than our estimate of INR7,533/t in 4QFY24. APAT for the quarter stood at INR12b (YoY/QoQ: - 29%/ +42%), against our estimate of INR11b during the quarter.

* For FY24, the revenue stood at INR2,292b (YoY -6%), EBITDA was at INR223b (YoY -31%), and APAT at INR34b (YoY -61%) in FY24. The production for FY24 came in at 29.9mt (YoY -2%) and sales volume at 29.4mt (YoY +2%).

* The company incurred a capex of INR48.5b in 4QFY24 and INR182b for FY24.

* Gross debt declined INR15b to INR882b. Net debt stands at INR775b and liquidity remains strong at INR318b, which includes cash & cash equivalents of INR95b. Management targets to keep Net Debt/EBITDA below 2.5x.

* The company declared a dividend of INR3.6 per share in FY24.

* Tata Steel Europe: Consolidated crude steel production stood at 2.14mt (YoY/ QoQ: -6%/ +12%) and sales stood at 2.12mt (YoY/QoQ: -2%/ +9%), owing to completion of reline of BF6 in early February.

* Revenue stood at INR207b (YoY/QoQ: -6%/ +8%) against our estimate of INR226b. ASP stood at USD1,157/t (YoY/QoQ: -5%/ -1%) against our estimate of USD1,278/t.

* EBITDA loss stood at INR6.8b (our estimate of INR14.7b) and EBITDA loss per tonne stood at USD38/t, against our estimate of USD83/t.

Highlights from the management commentary

* In 1QFY25, the realizations (ASP) for domestic operations is expected to increase by INR300-350/t as compared to 4QFY24.

* ASP for the Netherlands is likely to increase by GBP90/t in 1QFY25 due to better product mix and end of low rate long-term contracts.

* Coking coal consumption cost in India is expected to decline by USD10/t and in the Netherlands, it is expected to increase by USD24/t due to previous inventory. In the UK, there is no coking coal involved because of coke oven closure.

* The iron ore cost will be USD10/lower in the UK and about USD10/t higher in the Netherlands.

* Production guidance for Kalinganagar is set at 1.7mt for FY25. However, the overall incremental production guidance is 1.4mt due to the planned shutdown of a BOF in Jamshedpur for relining.

Valuation and view

* The India business has posted a decent performance, and domestic demand momentum is expected to continue, while TATA’s Europe operations has seen a sharp reduction in losses. The company expects its European operations (Netherland/UK) to start reporting positive EBITDA from 1Q/3QFY25, respectively. This would be mainly on account of higher realizations, better volumes with muted input cost.

* The company is on track to increase its steel capacity to 40mt.

* We have marginally increased our estimates for FY25 and FY26 to factor in the improved outlook, especially in European operations. TATA is trading at 7.1x FY26E EV/EBITDA and 2.0x FY26E P/B. We believe the stock is adequately priced in, and hence, we reiterate our Neutral rating with a revised SOTP-based TP of INR160.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412