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Result Synopsis

Tata Steel’s Q1FY25 performance was broadly in line with the consensus estimates despite lower volumes. The standalone business saw falling volumes on a QoQ basis however the realizations witnessed a Rs 800/t fall vs Rs 1,000-1,500/t steel price corrections that were witnessed during the quarter. The standalone operations remained strong with an EBITDA/t of Rs 13,670/t. The European operations saw losses negate substantially as the Netherlands blast furnace was commissioned into production after the completion of its relining which had been earlier delayed by a quarter. March 2024 saw the company announcing the shutting down of its coke ovens due to operational reasons followed by the closure of one blast furnace in the UK during July 2024. The company also announced its 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 reported a strong performance on the margin estimates despite the overhang of the European operations. The company reported a consolidated EBITDA margin of 12.7% (vs 11.5% in Q4FY24 and 10.7% in Q1FY24). The increase in margin was majorly on the back of lower coking coal consumption costs.

In terms of the operational performance, the consolidated crude steel production stood at 8.00 mt, rising 1.0% on a QoQ basis and 12.2% on a YoY basis. The deliveries for the quarter came in at 7.39 mt, a fall of 7.4% 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 is on the path to decarbonize its European operations starting with TSUK which shall be seeing the complete closure of the heave-end assets by the end of Q2FY25, followed by discussions with the Netherlands’ government on a possible DRI-BF transition. We value the company on a SOTP basis to arrive at an unchanged target price of Rs 169/sh.

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