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India EBITDA/tonne likely to increase but Europe likely to decline - Tata Steel Q2 Review

ICICIdirect Research 04 Nov 2022 DISCLAIMER

What's Buzzing 

Tata Steel reported an operationally steady set of Q2FY23 numbers wherein reported EBITDA/tonne of standalone operations came in broadly in line with our estimate while EBITDA/tonne of European operations came in higher than our estimate. 

Context 

For Q2FY23, Tata Steel standalone operations reported adjusted EBITDA/tonne of Rs 10177/tonne, broadly in line with our estimate of Rs 10000/tonne. For Q2FY23, Tata Steel European operations reported EBITDA/tonne of US$120/tonne, higher than our estimate of US$100/tonne. 

Our Perspective 

Going forward, for Q3FY23, with respect to Indian operations, realisations are expected to decline by ~Rs 800/tonne QoQ compared to Q2FY23. Also, for Q3FY23, with respect to Indian operations, coking coal consumption cost is expected to decline by ~US$80/tonne QoQ compared to Q2FY23. The benefit of lower coking coal costs is expected to more than offset the drop in realisations. Hence, for Indian operations, EBITDA/tonne is likely to improve on a QoQ basis, primarily aided by lower coking coal costs. For Q3FY23, with respect to European operations, coking coal consumption cost is expected to decline by ~US$100/tonne QoQ compared to Q2FY23. For European operations, during Q3FY23, iron ore costs are expected to decline by ~US$15/tonne compared to Q2FY23. Over the last few months, there was a sharp drop in European steel prices. Hence, for European operations, the drop in steel realisations would be far more than the benefit derived from lower costs. Hence, the EBITDA/tonne for European operations for H2FY23 is expected to be lower compared to H1FY23.

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