MOSL: TATA STEEL (Neutral)-Europe’s underperformance drives miss-Margins to compress further
TATA STEEL: Europe’s underperformance drives miss; Margins to compress further
(TATA IN, Mkt Cap USD6.1b, CMP INR382, TP INR422, 11% Upside, Neutral)
Consol. EBITDA declined 28% QoQ (-17% YoY) to INR53.8b (our estimate: INR59b) in 1QFY20, led by lower volumes and margins, particularly within the EU business. Adj. PAT was down 72% QoQ/YoY to INR6.7b (our estimate: INR13.4b).
- Standalone: EBITDA/t was down 7% QoQ to INR12,764 due to lower realization. Realization is expected to decline by ~INR3,000/t in 2Q before likely recovering in 2H. EBITDA was down 20% QoQ to INR39.5b.
- TSE: EBITDA/t declined by USD90 QoQ to USD4, as instead of carbon credit gain of USD30/t, there was a cost of USD10-15/t in the quarter. TSE has exhausted its credits and instead will have to buy credits from the market. Fall in steel spreads, weak demand and shutdown also impacted margins. Spreads are likely to remain weak.
- Bhushan: EBITDA/t improved 32% QoQ to INR9,128/t owing to a better mix (volumes down 25% QoQ to 860kt). EBITDA was flat QoQ at INR7.8b.
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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