BackTata Steel’s rising profitability, integrated ops give analysts confidence
Steel stocks had reported strong per-tonne profitability during the June quarter led by strong realizations
PremiumAs monsoon season may be coming to an end, analysts maintain a positive view on steel companies. Analysts at UBS Research in their 2 September note said they expect steel prices to remain higher for longer and hence raised target price for Tata Steel Ltd.
Steel stocks had reported strong per-tonne profitability during the June quarter led by strong realizations. Improved realizations took care of volume impact of the spread of the pandemic leading to the lockdown. The stocks as that of Tata Steel Ltd, though, scaled fresh highs in mid-August. Nevertheless, they have been trading near the same levels since.
The weak demand in the country due to the ongoing monsoon season, some correction in steel prices and weak Chinese demand data for July, have kept investors slightly cautious.
Analysts, though, maintain a positive view on demand and steel price outlook in the country. Analysts at UBS Research in their note said, “We still expect peak margins in FY22; however, steel prices, which could be higher for longer, lead us to raise estimates."
Tata steel Ltd had reported record-high consolidated Ebitda for three successive quarters. During the June quarter, the company consolidated Ebitda of ₹16,100 crore (up 14% sequentially) despite the impact of the pandemic.
The integrated operations of Tata Steel Ltd with captive iron-ore supplies also keep the confidence of investors and analysts firm. Higher iron-ore prices are not to impact profitability of the company. Factoring in the advantage of captive mining and the benefits of cost-saving initiatives, analysts at UBS Research have raised their domestic FY22/23 estimated Ebitda per tonne by 35-50% for Tata Steel.
Besides continued deleveraging due to improved cash flows is also improving the company’s earnings prospects. Also, the turnaround in European profitability of the company is also adding to prospects. The ongoing restructuring is helping European operations as better international demand and steel realizations boost profitability.
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