Tata Steel stock bogged down as Europe biz drags profitability in Q3
1 min read . Updated: 07 Feb 2023, 01:39 PM IST
PremiumGoing ahead, how steel prices shape up is a key monitorable for the stock. Further, higher coking coal prices could have a negative impact on near-term margins
Shares of Tata Steel Ltd were down around 4% in early deals on Tuesday, in response to the company’s December quarter (Q3FY23) earnings, announced after market hours on Monday, which came sharply below consensus estimates. For perspective: Tata Steel’s consolidated earnings before interest, tax, depreciation and amortization (Ebitda) came in at around ₹4,050 crore, a whopping 75% lower year-on-year. After accounting for depreciation, finance expenses and tax outgo, Tata Steel reported a net loss of about ₹2,500 crore last quarter.
So, what led to the disappointment on profitability? The key dampener stemmed from the company’s weak European operations. In fact, on an Ebitda per tonne basis, Tata Steel Europe incurred a loss of ₹7,810 during the quarter. This is against a profit reported in the July-September quarter as well as in the year-ago period. A drop in steel price realisations drove the fall in revenues for Tata Steel’s Europe business. However, this was offset to some extent by higher volumes quarter-on-quarter, though deliveries were lower year-on-year. The company said Ebitda saw margin compression as realisations moved lower even as total costs remain elevated.
To be sure, the standalone India operation reported a profit at the Ebitda per tonne level. Still some analysts reckon that performance was below expectations. Underlying India Ebitda per tonne rose ₹1,638 sequentially to ₹10,379 in Q3. Year-on-year, this measure was down as much as 64%.
Overall, at the end of the December quarter, Tata Steel’s consolidated net debt stood at ₹71,706 crore, flattish sequentially.
Going ahead, how steel prices shape up is a key monitorable for the stock. Further, higher coking coal prices could have a negative impact on near-term margins. “In our view, the key near term event to focus on would be China’s demand improvement over the coming weeks. Steel prices have increased by 10% and this would flow through to earnings in the March and June quarters," said a report by JP Morgan on 7 February.
