Amid positive sentiment revolving around metal companies on the back of China reopening in 2023, Tata Steel has soured the mood of the Street by skidding into the red in the third quarter.
The steelmaker reported a surprise consolidated net loss of Rs 2,223.84 crore for the quarter ended December 2022, against a profit of Rs 9,572.67 crore a year back. Revenue from operations fell 6.08 percent on year to Rs 57,083.56 crore from Rs 60,783.11 crore.
At 9:45 am, the stock was quoting Rs 113.95 apiece, lower by 3 percent amid heavy trading volumes of 35.5 million shares on the NSE. The stock has gained 6 percent in the past six months.
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British Steel Pension Scheme (BSPS) with Tata Steel UK as sponsor completed a substantial part of its de-risking journey with 60 percent of its liabilities insured in Q3, which was the reason behind the loss, the Tata Group firm informed.
The buy-in transaction resulted in a non-cash deferred tax expense of Rs 1,783 crore and increased the overall deferred tax expense for the quarter to Rs 2,150 crore.
"In India, steel prices were subdued even as raw material costs moved lower," said Koushik Chatterjee, Executive Director and Chief Financial Officer, Tata Steel. "While this increased margins at standalone operations from around 16 percent in Q2 to 18 percent in Q3, European operations witnessed margin compression due to lower realisations and elevated input costs."
Net debt of the company now stands at Rs 71,706 crore, with Net Debt to EBITDA at 1.76x.
Here's what brokerage are saying about the stock after the Q3 setback:
CLSA
The brokerage house maintained a 'buy' rating on the stock with target at Rs 135 per share.
“Consolidated EBITDA (earnings before interest, taxes, depreciation and amoritzation) was largely in-line with our estimate, but adjusted EBITDA was much lower,” it noted. The steel major’s consolidated EBIDTA stood at Rs 4,047 crore for the quarter.
Sequential improvement in earnings was lower than peers and EBITDA per tonne for Europe fell on sequential basis to negative $95 a tonne, it said.
Jefferies
The firm has a 'buy' rating on the stock with target at Rs 150 per share.
“EBITDA fell sequentially and was below estimates led by weak margins in Europe. However, standalone EBITDA/tonne rose, which was the first improvement after five quarters of decline,” it said.
Net debt was flat quarter-on-quarter.
Morgan Stanley
It has an equal-weight rating with a target price of Rs 110 per share.
Consolidated EBITDA slightly better than our estimates, and large deferred tax expenses towards BSPS drove net loss of Rs 2,200 crore, it noted.
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