Tata Steel is likely to report a loss for the period ending June 30, 2023 (Q1FY24) due to the double whammy of lower realisations and underperformance of its European operations. The company will announce its June quarter earnings on July 24.
According to a Bloomberg survey of 12 brokers, Tata Steel’s consolidated net sales are expected to come in at Rs 56,337.80 crore, down 10.75 percent YoY. Net loss is estimated at Rs 122.80 crore, according to 11 brokers.
The Tata Group-backed steelmaker's EBITDA may fall 37 percent QoQ and 70 percent YoY.
Tata Steel had clocked revenues of Rs 63,128.32 crore in Q1 FY23 and a net profit of Rs 7,714 crore. In the preceding quarter ended March 2023, the company had posted revenues of Rs 62,238.78 crore and a net profit of Rs 1,566.24 crore.
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Analysts estimate that Tata Steel Europe will post an EBITDA loss of $81/ton (-$92/ton in 4QFY23) led by weak demand and higher costs, partially offset by improved realizations QoQ.
Analysts also attributed the poor earnings to weak realisations stemming from lower global base metal prices (steel, aluminum, etc.), reduced average selling prices (ASP), sluggish global demand, and a slower-than-expected recovery in China.
"We estimate 1Q volumes (standalone) to decrease 10.7 percent QoQ to 4.4 million tons. We expect realisations to remain flat while EBITDA/ton (standalone) is expected to decrease by 21.3 percent QoQ to Rs13.1k/t. Corus EBITDA/ton is expected at negative $85/t," brokerage JM Financial said in a note to investors.
Tata Steel's provisional sales volumes for Q1 FY24 showed positive growth in its Indian operations, with sales standing at 4.8 million metric tonnes (MT), up 15 percent YoY. This increase was attributed to the ramp-up of NINL (Neelachal Ispat Nigam Limited). However, on a QoQ basis, sales volume declined by 10 percent due to a planned maintenance shutdown.
In contrast, Tata Steel Europe experienced a decline in sales volume to 1.97 MT, down 8 percent YoY and 9 percent QoQ. This reduction was mainly due to the planned re-lining of a blast furnace at Tata Steel Netherlands, which began in April 2023, resulting in a decrease in crude steel production at Tata Steel Europe.
"We expect consolidated revenue to fall QoQ led by lower sales volume which will offset the higher price realisation in India (Rs 1,200/t QoQ improvement guidance) and Europe (£15/t QoQ improvement guidance).
“Revenue will fall YoY due to lower HRC prices, which will partially be offset by higher sales volume. We expect EBITDA Margins to fall both YoY/QoQ, led by lower topline and higher coal and energy costs. Benefits from the lower coking coal costs will accrue from Q2FY24," said Axis Securities.
Brokerage firm PhilipCapital expects Tata Steel to post a loss on consolidated basis due to non-cash tax expenses amounting to Rs 1,500 crore on the British Pension Scheme separation. The brokerage expects a fall in volume across various geographies. Additionally, realisations are expected to be lower, while the cost of production (CoP) witnessed an increase.
Shares of Tata Steel are down 2.14 percent on YTD basis, but the 1-year return stands at 25 percent.
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