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Tata Steel reports lower profit in Q1, but JP Morgan sees 45% upside in stock price

Consolidated revenues for the Tata Group company during the reported quarter, rose 18.6 percent to Rs 63,430 crore compared to the revenue of Rs 53,465 crore recorded during the year ago period. On a sequential basis, the consolidated revenues have declined 8.5 percent from Rs 69,324 crore during the previous quarter

July 26, 2022 / 09:57 AM IST
Tata Steel Ltd on July 25 declared a consolidated profit after tax (PAT) of Rs 7,765 crore for the quarter ended June 2022. The PAT was lower by 12.8 percent compared to a profit of Rs 8,907 crore recorded during the same quarter last year.

Tata Steel Ltd on July 25 declared a consolidated profit after tax (PAT) of Rs 7,765 crore for the quarter ended June 2022. The PAT was lower by 12.8 percent compared to a profit of Rs 8,907 crore recorded during the same quarter last year.

 
 
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Tata Steel share price is in focus, a day after the company declared its June quarter earnings.

Tata Steel Ltd on July 25 declared a consolidated profit after tax (PAT) of Rs 7,765 crore for the quarter ended June 2022. The net profit was lower by 12.8 percent, compared to Rs 8,907 crore recorded a year back. On a sequential basis, the bottomline shed 20.4 percent from Rs 9,756 crore achieved in the quarter ended March.

Consolidated revenues for the Tata Group company during the reported quarter rose 18.6 percent to Rs 63,430 crore from Rs 53,465 crore a year ago. On a sequential basis, the consolidated revenues dipped 8.5 percent from Rs 69,324 crore in the previous quarter.

The performance for the quarter was impacted by the higher pet coke prices which resulted pushed up operating costs, while the export duty imposed by the government choked the exports which had a negative impact on the volumes.

At 9:18am, the stock was trading at Rs 965.35, up Rs 4.45, or 0.46 percent on BSE. It has touched an intraday high of Rs 974.00 and an intraday low of Rs 963.60.

The net debt at the end of the quarter stood at Rs 54,504 crores with Net debt to EBITDA of less than  1.0X. “We remain committed to our annual deleveraging target of $1 billion in line with our capital allocation strategy to reduce our debt,” said Koushik Chatterjee, Executive Director and Chief Financial Officer.

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“We expect that volatility in terms of steel price and input cost movement to continue in the next quarter but expect the spreads to stabilise in the second half of the year”, added Chatterjee. “The volatility in commodity prices and immediate impact of the export duty in India have led to an increase in working capital but our cost improvement and other initiatives along with expected pickup in demand in the second half of the year should result in normalisation of working capital”.

Global research firm JP Morgan has an overweight call on the stock with target at Rs 1,400 per share, an upside of 45 percent from current market price. The company witnessed substantial all around beat driven by Europe. "While Q2 is seasonally weak, H2 should rebound with large Q1 beat on Europe EBITDA per tonne at $365 per tonne. Steel prices bottomed in India given limited imports and steady underlying demand," it said.

On the other hand, domestic research and broking firm ICICI Securities has a reduce rating on the stock. According to its report, Tata Steel's consolidated EBITDA surprised on the back of strong Tata Steel Europe (TSE) EBITDA. TSE EBITDA expanded to USD 365 per tonne (up USD 120 per tonne QoQ) with support from contract realisations, favourable RM movement and lower energy costs.

"Negative EBITDA for Tata Steel Long Products is attributed to higher thermal coal prices as well as NRV provisions of Rs 780 million on coking coal and iron ore. We maintain reduce rating with an unchanged target price of Rs 827 per share as we wait for the EBITDA contraction cycle to play out (we expect the downcycle to last 4-5 quarters with peak being attained in Q2FY22)," it added.

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first published: Jul 26, 2022 09:57 am