Week performance in European operations is likely to have driven Tata Steel Ltd into losses in the September quarter. The steel major will report its earnings on November 1.
Consolidated loss for the quarter, according to five analysts polled by Moneycontrol, will be at Rs 700 crore as against a profit of Rs 1,533.90 crore a year ago, while the net revenue is likely to fall 10 percent each on-quarter and on-year to Rs 5,4138.60 crore.
For the domestic operations, PhilipCapital anticipates nearly flat volumes sequentially, but domestic realisations are expected to decline by Rs 2,500 per tonne (4 percent sequentially). Lower coking coal costs are offset by lower realisations, while EBITDA per tonne is projected to increase slightly.
Tata Steel Europe's revenue is likely to decline by 15 percent on-year and 18 percent sequentially to $2.10 billion. EBITDA loss is expected to widen to $267 million from $191 million a year ago and $219 million in the previous quarter. Analysts said weak performance in Europe is due to lower shipments and reduced realisations.
In Q2FY24, Tata Steel's sales volume is expected to have a slight 1.5 percent QoQ drop in its standalone business and a 10 percent QoQ decline in its European business. This is despite seasonal monsoon-related weakness, as the overall demand remained stable. The analysts anticipate a 7 percent sequential decrease in EBITDA per tonne, amounting to Rs 1,120, primarily due to a higher base in the previous quarter related to exchange gains.
PhilipCapital expects Tata Steel's overall volumes to decrease by 4 percent sequentially, mainly due to lower sales in Europe. Realisations are down by Rs 2,500 per tonne in India and $75 per tonne in Europe.
During the quarter, Tata Steel's European operation saw reduced shipments from the Netherlands, a fall in realisations, and lower absorption of fixed costs, which have further affected performance, analysts added.
In the September quarter, long steel prices dropped by Rs 3,000 a tonne from the previous quarter, and flat steel decreased by Rs 900 per tonne. Coking coal costs are expected to decline by $45-55 per tonne in Q2FY24 due to a lag effect, while iron ore costs fell by Rs 400 per tonne QoQ.
ICICI Securities anticipates a modest increase in EBITDA for the India operations. However, they expect losses at the Tata Steel European level to grow due to negative price-cost effects and blast furnace re-lining costs at Ijmuiden. Tata Steel Long Product is likely to report lower EBITDA due to a significant decline in long steel prices in Q2FY24.
BoB Capital highlights the risk of delayed capital investment plans affecting Tata Steel's earnings growth. They also mention the risk of potential closure of the company's upstream operations in the UK if a viable replacement option isn't found, which could lead to additional costs in restructuring for downstream operations.
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