ICICI Securities research report on Tata Steel
Tata Steel has reported adjusted consolidated EBITDA of Rs10.4bn against consensus of Rs12.9bn. While standalone numbers were broadly in-line, Tata Steel Europe (TSE) disappointed with EBITDA loss of US$42/te (expected EBITDA loss of US$6/te). TSE EBITDA has gains on account of sales of emission rights and wage support from European and UK government, while exchange fluctuations impacted. Lower volumes in standalone operations (down 30% YoY) impacted EBITDA. Management did highlight Rs20bn in costs remain unabsorbed due to lower volumes i.e operating leverage impact. FCF generation has been very impressive at Rs7bn for the group broken into Rs16.8bn in India and Rs9.8bn overseas. This has helped maintain net debt QoQ.
Tata Steel remains our top pick, as earnings tailwind (domestic price increases + impending price increase in Europe) and elevated net debt to market cap augurs well. Maintain BUY.
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