IGI Logo

Europe losses continue to widen

EBITDA ahead of estimates

Tata Steel (TATA IN) reported mixed Q3, with net sales slightly below our and Consensus estimates but above-expected EBITDA, led by lower-than-expected operating cost. Consolidated net sales fell ~4% YoY and ~1% QoQ to ~INR 547bn. However, EBITDA rose ~55% YoY and ~47% QoQ to ~INR 63bn. Adjusted PAT stood at ~INR 7.6bn versus a loss of ~INR 1.9bn in Q3FY23 and ~INR 10bn in Q2FY24.

Ramp-up of Kalinganagar facility to be gradual

TATA has started phase-wise commissioning of the upcoming 5mn tonnes expansion at Kalinganagar plant (Odisha) and expects to produce 0.7mn tonnes in FY25, followed by further ramp-up in FY26. TATA reiterated its target to reach 40mn tonnes capacity and post that, it may consider capacity expansion of: 1) ~4mn tonnes at Neelachal Ispat Nigam (NINL), 2) another 5mn tonnes at Kalinganagar facility and 3) 1.5mn tonnes at Tata Steel Meramandali. 

Consolidated EBITDA/tonne up ~55% YoY and ~45% QoQ

Consolidated sales volume was flat YoY but rose ~1% QoQ to ~7.2mn tonnes. Realization was down ~4% YoY/2% QoQ to INR 76,542/tonne. Operating costs fell ~8% YoY/6% QoQ to INR 68,599/tonne, led by: 1) lower purchase of scrap, pellets etc., 2) release in finished goods and semi-finished goods steel inventory and 3) forex gains. Thus, EBITDA/tonne surged ~55% YoY/45% QoQ to INR 8,760.

Valuation: Downgrade to Reduce, TP unchanged at INR 136  

We turn cautious on near-term performance of India operations, due to delayed ramp-up of Kalinganagar capacity, higher coking coal prices and soft steel prices. Further, continued challenges in UK operations and delayed start of Netherlands’ blast furnace 6 remain concerns. Therefore, we downgrade TATA to Reduce from Accumulate and cut FY24E/25E/26E EBITDA ~10%/16%/3%, respectively. As we roll over to December 2025E from September 2025E, our SOTP-TP is unchanged at INR 136, valuing India operations at 5x (unchanged) December 2025E EV/EBITDA, Europe operations at an EV of INR 342bn at 4x (unchanged) FY28E EV/EBITDA (discounted to the present value) and others at 4x (unchanged) December 2025E EV/EBITDA. 

Please refer disclaimer at Report
SEBI Registration number is INH000000933