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Tata Steel Q1FY23 Review: European operations surprises positively

ICICIdirect Research 27 Jul 2022 DISCLAIMER

What's Buzzing:

Tata Steel reported a healthy consolidated performance for Q1FY23 wherein consolidated topline, EBITDA and PAT all came in higher than our estimate. Healthy performance from the Tata Steel's European operations aided the overall beat at the consolidated level.

Context:

For Q1FY23, Tata Steel’s European operations reported a strong beat on the EBITDA front aided by long term contracts and product mix. For the quarter, Tata Steel European operations reported EBITDA/tonne of US$ 365/tonne significantly higher than our estimate of US$ 250/tonne (US$ 89/tonne in Q1FY22 and US$ 241/tonne in Q4FY22). For Q1FY23, Tata Steel standalone operations also reported steady operational performance for Q1FY23. Tata Steel standalone operations reported adjusted EBITDA/tonne of Rs 21326/tonne (down 10% QoQ, 35% YoY), higher than our estimate of Rs 20500/tonne.

Our Perspective:

For Q2FY23E, we expect Tata Steel’s standalone operations EBITDA/tonne to decline from Q1FY23 levels, primarily on account of lower steel prices sequentially. While for Tata Steel’s standalone operations, coking coal consumption cost for Q2FY23E are likely to decline by ~US$ 40/tonne QoQ, sequential fall in steel prices during Q2FY23E is expected to higher than the benefit of moderating coking coal costs. Hence Tata Steel standalone operations EBITDA/tonne for Q2FY23E is expected to be lower than Q1FY23 levels. Similarly, Tata Steel European operations EBITDA/tonne is also likely to decline in Q2FY23E as compared to Q1FY23 levels on the back of recent softness witnessed in global steel prices.

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