Tata Steel upside likely to stay capped, debt a worry
Net debt increased by almost 4 per cent to Rs 1.07 lakh crore.
For the September quarter, Tata Steel reported consolidated revenue of Rs 34,579 crore, a 15.5 per cent decline, against expectations of 18 per cent decline. EBIDTA at Rs 3,819 crore was down 57 per cent. EBIDTA margin stood at 11.6 per cent, almost half that of last year and 100 bps below expectations. The company made a loss of Rs 7 crore before tax, but consolidated net profit stood atRs 3,302 crore.
But analysts believe that steel prices have stabilized, and the benefit of lower raw material prices will start showing from the current quarter, especially for the European business. However, the long-term concerns remain – on how the company will pare down its mounting debt amid weakening global demand and falling earnings.
Net debt increased by almost 4 per cent to Rs 1.07 lakh crore. The company paid an interest of Rs 1,871 crore and adjusted EBIT was Rs 1,891 crore.
“In a good year, a billion dollar (debt reduction) looks quite feasible but in a year that has seen unprecedented reduction in market conditions, we may not be able to reach that,” said Kaushik Chatterjee, CFO at Tata Steel.
Deliveries improved 3 per cent to 6.53 million tons. But performance was weak across geographies due to global trade frictions. Over the last year, steel prices fell by $100 per ton or near 20 per cent in key geographies.
EBIDTA per ton of Rs 9,238 was one of the lowest in the last several years. Consolidated EBIDTA per ton at Rs 6,156 was below expectations as well.
However, the benefits of the recent fall in the iron ore and coking coal prices of nearly 30 per cent in both will be seen only in the December quarter.
Shares of steel stocks have been on the rise over the past few days due to optimism over progress in US-China trade talks.
Tata Steel’s stock, which is down 25 per cent in the past six months, too has gained 24 per cent from its lows in October. At the current price of Rs 404.4, Tata Steel’s stock is trading at 5.9 times its EV by EBIDTA, which is marginally below its five-year historical average of 6.3. However, given the weak industry situation, the upside is likely to remain capped.
TV Narendran, managing director at Tata Steel, said that the Kalinganagar phase 2 expansion is on track and the company is prioritising the pellet plant for cost reduction and the CRM plant for value addition.