BackInvestor confidence in Tata Steel gets a boost on strong earnings of group firm
Though European operations have been a drag for Tata Steel, rising steel prices should boost the company’s prospects. The major trigger for the stock though can be provided by the sale of its Netherlands business that will aid debt reduction too
PremiumMUMBAI: The strong performance of Tata Steel Long Products Ltd for the December quarter, boosted marker sentiment for Tata Steel Ltd as well. On Friday, when broader indices were in the red, the Tata Steel stock traded higher. Shares of Tata Steel Long Products rose more than 8%.
Tata Steel Long products among the country’s largest sponge iron manufacturers. Tata Steel had bought the steel business of Usha Martin, through Tata Sponge Iron and thereafter renamed it Tata Steel Long Products.
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Rising demand and strong realisations have led to the Tata group company reporting a 15% surge in revenue sequentially, and a 36.5% jump year-on-year. The major benefits were seen on the operating performance front, helped by improving realisations. Ebitda (earnings before interest tax depreciation and amortisation) jumped 123% sequentially and grew more than nine-fold on a year-on-year basis. On a per tonne basis, the improvement was remarkable. Blended steel and sponge iron Ebitda/tonne rose by $102 / tonne sequentially.
After this performance, all eyes will be on another group company - Tata Steel BSL. EBITDA for Tata Steel BSL is expected to increase 12% sequentially to ₹1,240 crore, as per Motilal Oswal Financial Services Ltd. EBITDA/tonne is seen rising 36% sequentially to ₹11,788. On a consolidated basis, Ebitda is likely to grow more than two-folds.
Robust realisations will brighten prospects for Tata Steel going ahead. Its integrated operations in India will cushion it from rising raw material prices globally. “We expect steel prices to remain elevated on-demand recovery, shortage of steel and significant cost-push," said analysts at Credit Suisse Equity Research in a note to clients. Tata Steel remains their preferred pick on ore integration.
Though European operations have been a drag for Tata Steel, rising steel prices should boost the company’s prospects. The major trigger for the stock though can be provided by the sale of its Netherlands business that will aid debt reduction too.
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