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Europe to progress well; Indian operations to remain steady

Result Synopsis

Tata Steel’s Q4FY24 performance was beat on EBITDA owing to strong Indian business performance clubbed with reduction in losses in the company’s European business. The Indian operations saw falling net sales realizations per tonne and saw coking coal impact to be minimal owing to a better blend. The standalone operations remained strong with EBITDA/t hovering over the long term Rs 15,000/t range guided by management earlier. The European operations finally saw losses negate substantially on account of receiving carbon credits in the UK as well as the Netherlands blast furnace was up and running after the completion of its relining which had been delayed by a quarter. March 2024 also saw the company announcing the shutting down of its coke ovens due to operational reasons. The company also announced plans on shutting down the heavy end assets completely in UK by the end of this financial year with the blast furnaces to not be operational post September 2024. On the results front, the company performed well beating margin estimates despite the overhang of the European operations. The company reported an EBITDA margin of 11.5% (vs 11.7% in Q3FY24 and 11.7% in Q4FY23). The margins dropped due to falling realizations for both the Indian and Netherlands operations. In terms of the operational performance, the consolidated production stood at 7.92 mt, rising 4.5% on a QoQ basis and 1.5% on a YoY basis. The deliveries for the quarter came in at 7.98 mt, a 11.6% rise sequentially and up 2.6% on a YoY basis.

Valuation & View

We see Tata Steel Ltd to be rightly positioned in the Indian steel space, growing strongly with upcoming capacities coupled with the expected relief on the European front. The company has been using leaner blends of coking coal thereby safeguarding themselves from the price volatility in coking coal over the recent months. We expect this trend to continue and be a good positive for the company on sustaining their margins going forward. We value the company on a SOTP basis to arrive at our target price of Rs 169/sh.

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