Earnings Outlook
Tata Steel may land up in red despite record sales Oct-Dec
This story was originally published at 18:55 IST on 23 January 2025
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By Avishek Rakshit
KOLKATA – Despite registering record quarterly sales volume in India, lower price realisations and continued financial stress in its European operations are expected to have pushed Tata Steel Ltd into the red in Oct-Dec.
The country's largest steel producer by installed capacity, Tata Steel sold 5.3 million tonnes steel in India during Oct-Dec, up 8.4% on year and 3.5% on quarter. It was best-ever sales for the company in any December quarter since it started operations back in 1907. Sales in Europe were up by 7.7% on year to 2.1 milion tonne, but down 1.9% sequentially.
However, brokerages, including Nuvama Wealth Management Ltd. and JM Financial Institutional Securities Pvt. Ltd., anticipate that average price realisations declined by INR 2,500 per tonne sequentially, thereby erasing gains from higher steel sales.
According to the average of estimates from 10 brokerages, the flagship company of the Tata Group is expected to report a consolidated loss of INR 4.1 billion in the December quarter, as against a consolidated profit of INR 5.1 billion in the year-ago quarter, and the profit of INR 8.3 billion in the Jul-Sept. The consolidated revenue is pegged at INR 526.7 billion, down 4.8% on year, and down 2.3% on quarter. In Oct-Dec of 2023-24 (Apr-Mar), Tata Steel's revenue was INR 553.1 billion, and during Jul-Sept, it was INR 539.0 billion.
Tata Steel will declare its results for Oct-Dec on Monday. However, brokerages seem to vary widely in estimating the company's financial performance for Oct-Dec.
Among the brokerages, three wealth management companies have given an estimate of Tata Steel posting a net profit. The range varies between INR 3.9 billion and INR 1.9 billion with JM Financial Institutional Securities Pvt. Ltd. estimating the highest profit and Motilal Oswal Financial Services Ltd. estimating the lowest.
Among the seven brokerages that have estimated Tata Steel to report a loss, Elara Securities (India) Pvt. Ltd. estimated it to be the highest at INR 9.6 billion, and Prabhudas Lilladher Pvt. Ltd. projects it to be the lowest at INR 5.0 billion.
On Tata Steel's revenue estimates, however, brokerages seem to have some consensus as estimates are not on the opposite sides of the pole like the profit or loss. Prabhudas Lilladher estimated Tata Steel's revenue to be the highest at INR 546.1 billion and Systematix Shares and Stocks (India) Ltd. estimated it to be the lowest at INR 515.5 billion.
At the current price, the stock is down 15.8?ter the company announced its September quarter earnings on Nov. 6. Although the company declared its earnings for Jul-Sept after trading hours, the stock closed marginally lower at INR 153.6. Nevertheless, the share price opened higher at INR 156.1, up by 1.6%, on the next trading day, but fell 3.3% to nearly INR 151 after hitting a high of INR 156.9, and a low of INR 150.2. On Thursday, shares of Tata Steel closed 1.1% higher at INR 130.4 on the National Stock Exchange.
Commenting on lower average realisations, Nuvama said in a note that although Tata Steel continued to maintain strong relations with the automotive makers, the company acceded to a lower contract price of steel supply with the automobile makers. Thus, although volumes are up for the company, the necessary benefit translating into profit growth may not come. During Jul-Sept, supplies to automobile buyers accounted for 24% of Tata Steel's total deliveries.
In a report, brokerage firm JM Financial said that globally, steel producers saw mixed trends during Oct-Dec. Prices of coking coal, one of the key raw materials to make steel, declined marginally on quarter to $203 per tonne, but iron ore prices in China were up by 2% sequentially to $197 per tonne.
In India, steel markets witnessed a divergent price trend as well. Prices of products like wire, rod, rail, and bars increased by INR 1,000 per tonne, but that of sheet, coils and plates declined by INR 2,500 per tonne, JM Financial said.
However, owing to its European operations, which account for 26% of its revenues before inter-segment revenue adjustments, Tata Steel is expected to feel the drag on its finances.
Although Nuvama expects losses from Europe to decrease on a sequential basis, operations will still be in the red. The per tonne earnings before interest, tax, depreciation and amortisation from European operations could narrow down to (-)$58 during Oct-Dec as against (-)$75 in Jul-Sept. Lower raw material costs and fixed costs in the UK are expected to have helped the EBITDA. Nevertheless, operations in the Netherlands will be the hit harder due to falling steel prices in that country.
Falling sales realisation is expected to significantly impact Tata Steel's consolidated EBITDA as well.
The average of estimates from nine brokerages projected Tata Steel's Oct-Dec EBITDA to decline sharply by 26.2% on year, and 25% on quarter to INR 46.7 billion. The steel monolith had reported an EBITDA of INR 63.3 billion in the year-ago quarter, and INR 62.2 billion in Jul-Sept.
Nuvama, which pegged the EBITDA the highest at INR 52.3 billion, stated stress on European operations, and lower price realisations as primary cause for the decline in the measure. Systematix, which has the lowest estimate of INR 44.5 billion, also gave a similar reason for its projections.
Following are the Oct-Dec earnings estimates for Coal India based on reports from eight brokerage firms in the descending order by the estimate of net profit:
|
Broker Name |
Net Sales (in million rupees) |
Net Profit (in million rupees) |
EBITDA (in million rupees) |
|
JM Financial Institutional Securities Pvt Ltd |
5,34,656.00 |
3,884.00 |
45,775.00 |
|
Axis Securities Ltd |
5,25,130.00 |
2,120.00 |
47,650.00 |
|
Motilal Oswal Financial Services Ltd |
5,22,651.00 |
1,939.00 |
45,262.00 |
|
Prabhudas Lilladher Pvt Ltd |
5,46,100.00 |
-5,000.00 |
46,300.00 |
|
Nuvama Wealth Management Ltd |
5,24,779.00 |
-5,406.00 |
52,300.00 |
|
Anand Rathi Share and Stock Brokers Ltd |
5,23,872.00 |
-5,837.00 |
N.A. |
|
IDBI Capital Market Services Ltd |
5,24,783.00 |
-5,903.00 |
47,280.00 |
|
Kotak Institutional Equities |
5,33,077.00 |
-8,065.00 |
46,360.00 |
|
Systematix Shares and Stocks (India) Ltd |
5,15,500.00 |
-9,400.00 |
44,500.00 |
|
Elara Securities (India) Pvt Ltd |
5,16,488.00 |
-9,591.00 |
45,322.00 |
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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