MOSL: TATA STEEL (Neutral)-Lower cost of production driving EBITDA beat
Tata STEEL: Lower cost of production driving EBITDA beat
(TATA IN, Mkt Cap USD10.4b, CMP INR684, TP INR778, 14% Upside, Neutral)
Margin outlook robust, but rights issue drags valuations
- TATA reported a strong operating performance in 3QFY18. Consol. EBITDA rose 21% QoQ to INR57b, driven by 7% volumes growth and expansion in EBITDA per ton for Indian operations (TSI). Other businesses, however, were muted. A 10% beat to EBITDA estimate was driven by lower-than-expected cost of production at TSI. Reported PAT was impacted by INR11b provision toward various regulatory demands against Indian mines. Adj. PAT grew robustly by 86% QoQ to INR24.4b.
Key highlights of results
- TSI: EBITDA per ton rose INR3,066 QoQ to INR14,025/t, led by average net realization (NSR) increase of INR1,330/t, while the rest is explained by lower cost of coking coal, specific consumption of coke, and lower purchase of pellets, among others.
- Europe (TSE): Sales declined 6% QoQ to 2.44mt due to seasonal factors. EBITDA/t declined USD4 QoQ to USD40 due to manufacturing expenses, despite an expansion of spreads by EUR34 to EUR270/t.
Tata Steel is primarily engaged in the manufacturing of steel and its related products. Through its joint ventures, Co. is also engaged in iron ore and coal exploration and mining activities. Co.'s products include hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rebars and bearings. Co.'s products are sold under the following brand names: Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Bearings, Tata Agrico, Tata Wiron, Tata Pipes and Tata Structura. Apart from these product brands, Co. also has in its folds a service brand called "steeljunction".
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