Tata Steel Stock: Tata Steel declared a consolidated profit after tax (PAT) of Rs 7,765 crore for the quarter ended June 2022. The net profit was lower by 12.8 per cent, compared to Rs 8,907 crore recorded a year back. On a sequential basis, the bottomline shed 20.4 per cent from Rs 9,756 crore achieved in the quarter ended March. Tata Steel’s European business delivered a sharp improvement in performance as long-term contracts and product mix helped drive a strong increase in realisations. At least two brokerage firms have reduced ratings on the stock, as Tata Steel reported a 21.03 per cent on-year fall in consolidated net profit.
The performance for the quarter was impacted by the higher pet coke prices which resulted pushed up operating costs, while the export duty imposed by the government choked the exports which had a negative impact on the volumes.
The net debt at the end of the quarter stood at Rs 54,504 crores with Net debt to EBITDA of less than 1.0X. “We remain committed to our annual deleveraging target of $1 billion in line with our capital allocation strategy to reduce our debt,” said Koushik Chatterjee, Executive Director and Chief Financial Officer.
Stock Price History
On a year-to-date basis, Tata Steel’s share price has tanked 15.2 per cent, and 11 per cent in the last six months. The stock has plummeted more than 25 per cent in the last one year. Tata Steel had posted a net profit of Rs 9,768.34 crore for the same period a year ago. The company’s total revenue from operations rose 18.64 per cent to Rs 63,430.07 crore from Rs 53,465.43 crore during the year-ago period. Consolidated Ebitda stood at Rs 15,047 crore.
Global research firm JP Morgan has an overweight call on the stock with target at Rs 1,400 per share, an upside of 45 per cent from the current market price. The company witnessed a substantial all around beat driven by Europe. “While Q2 is seasonally weak, H2 should rebound with large Q1 beat on Europe EBITDA per tonne at $365 per tonne. Steel prices bottomed in India given limited imports and steady underlying demand,” it said.
On the other hand, domestic research and broking firm ICICI Securities has a reduce rating on the stock. According to its report, Tata Steel’s consolidated EBITDA surprised on the back of strong Tata Steel Europe (TSE) EBITDA. TSE EBITDA expanded to USD 365 per tonne (up USD 120 per tonne QoQ) with support from contract realisations, favourable RM movement and lower energy costs.
“Negative EBITDA for Tata Steel Long Products is attributed to higher thermal coal prices as well as NRV provisions of Rs 780 million on coking coal and iron ore. We maintain reduce rating with an unchanged target price of Rs 827 per share as we wait for the EBITDA contraction cycle to play out (we expect the downcycle to last 4-5 quarters with peak being attained in Q2FY22),” it added.
Analysts at Prabhudas Lilladher have a negative stance on the sector due to weak outlook on steel prices and concerns on global demand. They said that Q1 earnings have come above their estimates but it is driven by a fall in steel prices with a lag. Prabhudas Lilladher said that Tata Steel reported a strong set of Q1FY23 earnings. The beat was largely due to stronger-than-expected realisations in India operations and elevated margins in Tata steel Europe (TSE).
Motilal Oswal analysts said Tata Steel Europe (TSE) reported a record EBITDA of USD374/t (up 294 per cent on-year, 39 per cent QoQ) propelled by strong tailwind of contractual prices. : We believe the next round of contract renewals will happen at significantly lower prices as European HRC prices are down by almost 38 per cent now v/s Apr’22 average,” they added. The brokerage firm also added that for the first time in the history since being acquired, Tata Steel Europe reported higher EBITDA/t. The research firm noted that the two important things that one needs to understand are what is the sustainable level of EBITDA/t at TSE; and will TSE take recourse to the parent’s balance sheet in transitioning to green steel? “These should ideally define the valuation and stock trajectory in our view, as steel prices have now dropped and it is a matter of time when TSE reports a declining trend in EBITDA as well,” it said.
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