In the December quarter, Tata Steel returned to profitability, driven by the resilience of its Indian operations, despite challenges faced by its Netherlands and UK segments due to subdued demand conditions.
During Oct-Dec, the steelmaker reported a consolidated net profit of Rs 522 crore, marking a significant turnaround from both the year-ago period and the preceding quarter when losses were incurred. Despite a 3% decline in consolidated sales, amounting to Rs 55,312 crore for the quarter, Tata Steel demonstrated improved financial performance.
Tata Steel’s consolidated earnings before interest, tax, depreciation, and amortization (EBITDA) witnessed a remarkable surge of over 50% year-on-year, reaching Rs 6,334 crore. This positive momentum in operating profit was sustained, even with flat deliveries, and showcased a sequential improvement from the preceding quarter.
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The stock of Tata Steel has gained over 2% in the last 5 days but dipped more than 3% in the last one month. When considering medium and long-term returns, the stock has surged over 10% in the last 6 months and 13.31% in the last one year.
Here is what top brokerages predict
Jefferies retains ‘Buy’ on Tata Steel
In a recent report, Jefferies analysts provided insights into Tata Steel’s third-quarter performance, indicating a notable 47% quarter-on-quarter (QoQ) surge in EBITDA, albeit slightly trailing Jefferies’ expectations by 3%. Jefferies retains a “Buy” rating for Tata Steel with a target share price of Rs 160.
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Standalone EBITDA per tonne exhibited a robust 21% QoQ increase, reaching Rs 17,000. However, the report highlighted that Tata Steel Europe (TSE) reported another EBITDA loss, adding a nuanced perspective to the overall performance.
Anticipating a positive trajectory, Jefferies projected a 12% compound annual growth rate (CAGR) in Tata Steel’s India volume over the period spanning FY24-26E. This optimistic outlook is attributed to the commencement of a new 5 million tonnes per annum (mtpa) capacity.
The report emphasized the challenges posed by the Asian steel market, with steel spreads approaching levels not witnessed since 2010. Despite a 22% decline in Asian flat (HRC) steel prices from March to October 2023, a subsequent recovery of 9% to $570 has been observed.
Jefferies pointed out the delicate balance in steel demand and supply in China, leading to substantial exports and impacting spreads negatively.
Considering the macroeconomic landscape, Jefferies adjusted its earnings per share (EPS) estimates, reducing FY25 EPS by 8% due to a slightly slower ramp-up of the new capacity in India. However, FY26 EPS was revised upward by 5%.
JM Financials Maintains Buy on Tata Steel
JM Financial maintains a “BUY” rating for Tata Steel with a target share price of Rs 145, reflecting confidence in the company’s resilience and strategic initiatives in a dynamic market environment.
In a recent report by JM Financials, Tata Steel showcased robust performance in the third quarter, reporting consolidated EBITDA of Rs 57.4 billion, surpassing JM Financials’ estimate of Rs 47 billion by approximately 22%. The stellar outperformance was primarily attributed to the commendable performance of Tata Steel’s Indian operations, offsetting sustained losses in the European sector.
Tata Steel’s India business witnessed a quarter-on-quarter (QoQ) increase in EBITDA per tonne, reaching Rs 16.9 thousand per tonne. This uptick was attributed to favorable movements in closing inventory. On the flip side, the European operations reported a continued EBITDA loss of USD 178 per tonne, compared to a loss of USD 168 per tonne in the second quarter.
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This was primarily due to delays in the relining of the blast furnace in the Netherlands.Despite the European challenges, Tata Steel reported a profit of Rs 5 billion during the third quarter. The net debt marginally increased to INR 774 billion, up INR 4 billion QoQ.
Key takeaways from the report include expectations for coking coal price movements in the fourth quarter, with positive impacts projected for India, Netherlands, and the UK. Additionally, anticipated net realization movements in the fourth quarter were outlined, with adjustments expected in India, Netherlands, and the UK.
The report highlighted that the Netherlands blast furnace is anticipated to be operational by the end of January 2024, with expectations for EBITDA positivity by fiscal year 2025. Tata Steel aims to halve losses in the UK by FY25, and the phased commissioning of Kalinganagar has commenced, with an additional 0.7 million tonnes in volume expected in FY25.
