Tata Steel: India business rebound in September quarter leads peers

Topics Tata Steel | Q2 results

Benefitting from its integrated Indian operations, Tata Steel's standalone Ebitda jumped more than three-fold over lockdown impacted June quarter and 41 per cent year-on-year
Tata Steel’s September quarter (Q2) results, reported on Friday, brought double cheer to the Street.

Not only did the firm’s India business rebound significantly and beat expectations, per-tonne profitability also surpassed most peers — aided by the rising demand and realisation environment.

The steel major’s announcement on initiation of discussion with Sweden’s SSAB, for the restructuring of its Europe business, comes as an additional boost. A successful deal will reduce concerns over the weak prospects of its European operations, and help pare debt.

Consequently, Tata Steel’s global depository receipts have risen nearly 6 per cent on the London Stock Exchange, since Friday. In India, shares gained a further 1.15 per cent in Mahurat trading on Saturday, having already risen 3 per cent ahead of the results.

Benefitting from its integrated India business, Tata Steel’s stand-alone Ebitda jumped more than 3x over the lockdown-hit June quarter, and 41 per cent year-on-year. Per-tonne Ebitda at Rs 13,127 not only more than doubled from Q1’s Rs 6,100, but was 17 per cent better than the year-ago quarter’s Rs 11,200.

In comparison, JSW Steel had reported Ebitda per tonne of Rs 10,136 for its domestic operations, while SAIL’s adjusted Ebitda per tonne was Rs 4,762. Only that of Jindal Steel and Power (JSPL) — which benefited from operating leverage due to expansion and iron ore supplies from Sharda mines — is comparable at Rs 13,247.

Tata Steel is also turning around its acquired subsidiaries, such as Tata Steel BSL (acquired assets of Bhushan Steel) and Tata Steel Long Products, which reported Ebitda per tonne of Rs 8,735 and Rs 10,512 in Q2, respectively.

This was better than the Rs 5,062 in the year-ago quarter, in which it reported an operating loss. Further measures to cut costs and improve efficiencies are in process, all of which should boost operating profit.

It has already reported 72 per cent sequential and 22 per cent YoY growth in quarterly deliveries across India operations (including Indian subsidiaries), to 5.05 million tonnes (mt).

Meanwhile, domestic steel consumption continues to rise and even though steel consumption apparently declined 10.1 per cent YoY to 23.6 mt in Q2, the recovery — which started in August — led to consumption touching 96 per cent of the FY20 monthly average, in September.

Supported by rising demand and firm global steel prices, domestic realisation has been improving, and is currently at its highest level since December 2018, say analysts.

Aided by higher realisations and volumes, Tata Steel’s stand-alone revenues grew 75 per cent sequentially and 10 per cent YoY to Rs 16,362 crore in Q2. Reported net profit at Rs 2,205 crore doubled sequentially but came in lower than the Rs 4,043 crore in the year-ago quarter.

However, the firm had received tax benefits (reversal) worth Rs 4,050 crore in the year-ago quarter.

Consolidated performance was strong, with adjusted Ebitda growing over 5x sequentially (up 35 per cent YoY) to Rs 5,425 crore and beating expectations.

Analysts at Motilal Oswal Financial Services (MOFS) had pegged the same at Rs 4,819 crore. Sales at Rs 37,154 crore (up 53 per cent sequentially and 7.5 per cent YoY) and net profit at Rs 1,635 crore (against a loss in Q1), were also ahead of Bloomberg consensus estimates of Rs 34,147 crore and Rs 29 crore, respectively.

Losses in its European operations — which remain the weak link — declined to Rs 462 crore at the Ebitda level, from Rs 626 crore in Q1. This was on the back of higher deliveries, a favourable product mix, and partial benefit of higher realisations since August; full benefits of higher prices will reflect in the coming quarters.

Closure of the deal with SSAB, for the potential acquisition of its Dutch business Ijmuiden steelworks, will help reduce debt. Street sentiment will strengthen once Tata Steel finds a buyer for its loss-making UK business.

The Street will be watchful and any progress will help reduce concerns.

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