MOSL: TATA STEEL (Neutral)-Subsidiaries’ underperformance drives a miss-Margins to remain weak over the near term
TATA STEEL: Subsidiaries’ underperformance drives a miss; Margins to remain weak over the near term
(TATA IN, Mkt Cap USD6.4b, CMP INR403, TP INR430, 7% Upside, Neutral)
** Tata Steel's (TATA) consol. EBITDA declined 29% QoQ to INR38.2b (our estimate: INR47.2b) in 2QFY20 due to weaker spreads and FX translation losses. The company reported a loss of INR290m at the consol. PBT level (our estimate: +INR10.6b). Adj. PAT came in significantly higher at INR41.8b (+21% YoY), led by a favorable tax impact of INR42.3b as TATA adopted the new corporate tax rate.
** Standalone: EBITDA/t was down 11% QoQ to INR11,703 due to lower realization (-6% QoQ to INR50,038/t). EBITDA was down 12% QoQ to INR34.8b. We expect EBITDA/t to improve gradually as cost-reduction benefits are likely to be realized from 3Q - we estimate INR12,525 in 2HFY20.
** TSE: EBITDA/t remained weak at USD10 (v/s USD4 in 1QFY20 and USD70 in 2QFY19). We do not expect a sharp recovery in EBITDA, as TSE has exhausted its carbon credits and will have to buy credits from the market. The fall in steel spreads, weak demand and planned summer shutdowns also impacted the margins. The focus remains on savings costs and capex in order to be cash positive.
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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