Tata Steel Q3 EBITDA likely to fall 21% to Rs 2315 cr

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By Nigel D'souza, Research Analyst at CNBC-TV18

Tata Steel , a part of Tata Group, is expected to report a profit after tax of Rs 224 crore in the October-December quarter of FY12, a massive fall of 78% as compared to Rs 1,030.3 crore in a year ago quarter.

Net sales are seen going up by 5% to Rs 30,084 crore from Rs 28,606.2 crore year-on-year.

EBITDA is likely to fall 21% to Rs 2,315 crore from Rs 2,941.3 crore during the same period.

EBITDA margin is expected to be falling at 7.7% in the quarter ended December FY12 versus 10.3% in the corresponding quarter of last fiscal.

On quarter-on-quarter basis, net sales are seen going down by 7.5% and even EBITDA is likely to fall 5.9%. However, PAT is expected to go up 5.5%.

Points to watch out for:

In Q2FY12, Tata steel reported disappointing numbers and this quarter is expected to be on the similar lines on the back of:
(i)                  Lower volumes
(ii)                 Lower realizations
(iii)                Lagged impact of high coking coal prices
(iv)                Worse performance from TSE and other subsidiaries
(v)                 Forex loss: In Q2FY12 the depreciation of the Indian currency against the dollar resulted in a forex loss of USD 1.5 billion reported in other expenditure

Volumes:

- Consolidated sales volumes: Expected to decline at least 10% QoQ to around 5.4 MT

- Indian sales volumes: Estimated to be flattish with a negative bias and should stand at approximately 1.62 to 1.64 MT

- TSE (Corus): Volumes likely to decline 6%QoQ to 3.2mt

Tata Steel India (TSI):

- Expect average steel realization to be flat QoQ and 10% YoY as domestic steel prices are flat due to lackluster demand despite sharp rupee depreciation

- Revenues to be flattish on account of stable steel volumes and realizations

- EBITDA margins will be hampered by higher raw material costs (led by depreciating currency) in standalone operations

- Tata Steel is likely to report stable performance in its standalone business on sequential basis

TSE and others will lead the slide: On the back of a poorer performance of TSE and other subsidiaries

- Lower realizations from European operations is expected to impact revenue growth of Tata steel

- Larger EBITDA loss in Corus due to lower realizations, lower volumes and marginally higher raw material costs on QoQ basis

- A significant sequential rise in operating losses at Corus, led by lower volumes and realization per tonne

- European steel prices would remain under pressure due to much weaker demand

- Higher macroeconomic uncertainty to result in lower utilization coupled with margin pressure at Corus

- Expect a sharp margin squeeze at TSE due to lower steel prices & lagged impact of higher input costs

- South Asian operations are also likely to report deeper EBITDA loss

Future Outlook:

- Watch for management commentary on UK pension liabilities and progress on the Jamshedpur expansion

- Steel pricing environment is expected to remain subdued in light of poor steel demand due to weak world economy and impact of fall in raw material prices