Tata Steel shares fall as Q2 net loss bigger than estimate; but there is a silver lining

Tata Steel shares fell on November 2, a day after the company reported a net loss for Q2 FY24, which was far bigger than analyst estimates. The steel giant faced a dual setback with impairment charges, restructuring provisions against the UK business, and declining margins in the European market.

Tata Steel’s consolidated net loss for July-September came in at Rs 6,511 crore, against a net profit of Rs 1,297 crore a year ago. Revenue fell on an on-year basis. Analysts had expected a net loss of about Rs 700 crore.

However, analysts believe that Tata Steel‘s huge consolidated net loss in the quarter is a one-off item.

At 9:18 am, Tata Steel shares were trading marginally lower at Rs 116.30 on the National Stock Exchange (NSE).

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The company’s Europe business remains a drag. However, domestic EBITDA coming in ahead of estimates is positive. Another good news was the impact of lower realisations being more than offset by lower ‘other’ capex.

Morgan Stanley maintains an ‘Equal Weight’ rating on the stock with a target price of Rs 115 per share.

Focus on restructuring, other provisions

Tata Steel continued to flag ongoing concern for its European business citing inadequate cash flow and liquidity. The company has taken steps toward restructuring and other provisions. Given their plans to change the processed route for steelmaking, the existing heavy-end assets at TSUK will only be used for a defined period.

“Accordingly, we have taken an impairment charge of Rs 12,560 crore in the standalone financial statements. We have also taken a charge of Rs 6,358 crore in consolidated financial statements in relation to the UK business,” said Koushik Chatterjee, Executive Director and Chief Financial Officer, in a statement.

“The company continues to remain focused on cost optimisation, operational improvements, and working capital management to maximise cash flows,” Koushik Chatterjee, Executive Director, and Chief Financial Officer, said in a statement.

Also Read | Tata Steel reports loss in Q2 on impairment charge, provisions, weak UK performance

Share performance

Tata Steel shares fell over 2 percent on November 1 to close at Rs 116.15 on the National Stock Exchange (NSE). In the last one year, the stock has rallied around 14 percent, outperforming benchmark Nifty which has risen 5 percent during this time.

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