Given the strong results, analysts now believe that Tata Steel, which became the third private sector firm in India to report quarterly revenues of Rs 50,000 crore after Reliance Industries (RIL) and Tata Motors, to report an even-better April to June quarter as steel prices continue to rise.
“We estimate the impact of iron ore sales at Rs600/tonne sequentially. Its cash cost per tonne rose 8 per cent QoQ to Rs 36,318. With spot steel prices around Rs 9,000/t, higher than the Q4 average, Q1Fy22 is poised to be even better,” said global brokerage CLSA in its report.
Here’s how analysts interpret the results:
Recommendation: BUY | Target price: Rs 1,125
Adjusted Ebitda, excluding certain foreign exchange and other revaluations, was at Rs 13,900 crore — up 68 per cent QoQ and 18 per cent above estimates. This was on the back of rising steel prices which drove higher margins sequentially across businesses. Separately, standalone and BSL Ebitda/t expanded Rs 8,000 QoQ while Tata Steel
Europe (TSE) margins improved from negative $47/t in Q3FY21 to $66/t in Q4FY21.
Tata Steel reported its highest ever standalone profitability of Rs 27,800, partly boosted by inter-company iron sales. Europe profitability, meanwhile, was better than we estimated at $66/t while the impact of carbon costs was $40/t. We await clarity on the split between recurring and one-off, and also the impact of the wage support reversal.
We would note spot European spreads are $240/t higher than the Q4 average, which augurs well for FY22 profitability. Among other international business, SEA is now reclassified as a continuing business, contributing Rs 290 crore to Q4 Ebitda & 0.6mt to quarterly volume.
Reco: OVERWEIGHT | TP: 1,000
TSE reported Ebitda of Rs 1,190 crore compared with our estimate of Rs 1,970 crore. Ebitda/t was at £51 relative to recurring F3Q of £17/t. We understand that there was an impact from higher carbon credit costs, part of which may not be a recurring expense. Thus, we would expect TSE's performance to improve in the coming quarters. Tata Steel incurred capital expansion of Rs 7,000 crore and has also started KPO2 expansion project. Despite restarting capex projects, it continues to expect de-leveraging of at least $1 billion in 2022.
Reco: HOLD | TP: Rs 1,020
Management has maintained its net debt reduction guidance of over $1bn for FY22E. This appears a bit conservative given the MTM earnings and despite accelerated capex. The extent of deleveraging is creating an upward bias for multiples for the entire sector, given significantly reduced loss probability. We maintain HOLD as spot Ebitda, at Rs38,000/te, remains a key concern, especially when cycle duration has shrunk.
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