Tata Steel Q4 profit takes 84% dent but outshines estimates: Here’s what brokerages say

Tata Steel’s Q4 revenue from operations came in at Rs 62,962 crore, down 9.2 percent from Rs 69,323 crore in the year-ago period. Analysts had pegged revenue at Rs 58,962 crore

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A strong performance by India operations helped Tata Steel beat Street estimates on all fronts. Although Q4 net profit dropped 84 percent to Rs 1,566 crore, it was higher than the analyst expectation of Rs 955 crore.

Revenue from operations for Tata Steel came in at Rs 62,962 crore, down 9.2 percent from Rs 69,323 crore a year ago. The analysts had pegged the revenue at Rs 58,962 crore. Operating margins at 11.5 percent was also higher than the estimate of 9.8 percent.

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At 10:30 am, Tata Steel stock was quoting at Rs 109.65, lower by 0.5 percent. The stock is down over 8 percent in 2023 so far.

After the Q4 numbers, JPMorgan gave an ‘overweight’ rating and a target price of Rs 150 for the stock, while Morgan Stanley and CLSA gave it an ‘equal-weight’ and ‘outperform’ rating with target prices of Rs 110 and Rs 125 per share.

According to Morgan Stanley, Tata Steel’s standalone EBITDA was much stronger due to better realisations and lower operating expenses. This drove a good beat on a consolidated basis, but the European business continued to struggle and was a significant drag on the overall performance.

The India business generated a margin of 20 percent, while Europe was at 5 percent with higher input costs affecting margins.

JPMorgan has highlighted that the strong performance of Tata Steel’s India operations offset the weak European business, resulting in a large beat. They also noted that debt reduction is a positive, and the sharp improvement in India EBITDA per tonne to Rs 16,700 is another positive.

Tata Steel’s net debt decreased by around Rs 3,900 crore to Rs 67,810 crore. “Our liquidity remains strong at Rs 28,688 crore. Net debt to EBITDA was 2.07x,” the company stated in a press release.

Additionally, JPMorgan believes that the improvement in other Indian operations, including Neelachal Ispat Nigam Limited (NINL), which is working on a project plan to expand capacity from 1 million tonnes to 5 million tonnes, is also a positive sign.

For CLSA, too, the strong beat in India operations drives the optimism. “While losses in Europe were in-line, residual EBITDA increased sequentially,” CLSA said.

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