Shares of Tata Steel closed 8 percent higher as investors cheered the company’s strong Q4 results.
The Tata Group firm narrowed its consolidated net loss to Rs 1,168 crore against a loss of Rs 3,042 crore posted during the same period last year. An exceptional loss of Rs 4,068.6 crore was posted by the firm.
Tata Steel reported consolidated revenues of Rs 35,304.9 crore, up over 30 percent against Rs 27,071 crore posted during the corresponding quarter of last year.
The strong performance was visible in its standalone numbers, which explains the narrowing losses on a consolidated basis too. The company’s standalone net profit was more than double than its year ago period at Rs 1,415 crore against Rs 520 crore year on year.
Revenues were up 45.8 percent at Rs 17,113 crore against Rs 11,736 crore year on year. Its standalone EBITDA was up a whopping 97.6 percent at Rs 4,360.9 crore against Rs 2,206.7 crore, while margins came at 27.9 percent against 20.8. Its Europe operations’ EBITDA came in at Rs 1,972 crore.
Analysts have largely remained positive on the stock, highlighting the stellar EBITDA performance and likely lesser capex plans.
Brokerage: Axis Cap | Rating: Buy | Target: Rs 576
The brokerage said that the company’s consolidated EBITDA beat its and consensus estimates. Higher domestic volumes, EPCG benefit of higher exports, and inventory normalisation, among others lead to the higher than expected EBITDA.
Axis Cap upgraded the stock to a buy rating due to favourable macro and MIP support to average realisation in domestic steel business.
“Sharp depreciation of Pound, favorable steel prices, better product mix (Differentiated product proportion increased to 37% in Q4FY17 against 32% in Q4FY16) and closure of loss-making plants were the key reasons for turnaround,” it said in its report.
Brokerage: Macquarie | Rating: Underperform | Target: Rs 370
The company’s EBITDA beat was driven by significant surprise in India and Europe margins, said Macquarie. The guidance of no capex expansion in this fiscal and UK pension talks being in final stages are key positives for the company, it said. Macquarie sees Q4FY17 as the peak of margins and earnings and any near term rally is a chance to exit.
On margins, it does not feel that current levels are sustainable. The contraction in margin in India and Europe business are key catalysts for the stock, it added.
Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 575
Morgan Stanley believes that earnings momentum, though currently strong, may moderate from current levels. The better than expected momentum in the FAMD (Ferro Alloys and Minerals Division) business in current quarter is a positive.
Brokerage: CLSA | Rating: Buy | Target: Rs 570
The brokerage observed that the firm witnessed strong margin expansion in both India and Europe in Q4. Margins are likely to recede from Q4, but expectations for FY18 still get a lift. If UK Pension negotiations go through, chances of a joint venture with ThyssenKrupp brighten, it feels. Overall, it remains positive on the firm given pension talks and improving industry environment.
Brokerage: JPMorgan | Rating: Overweight | Target: Rs 690
The global brokerage has increased FY18-20 earnings per share (EPS) estimates by 7-8 percent. It believes that any JV in Tata Europe should drive a re-rating and hence there is an upside to the target price. Meanwhile, downside risks include collapse in margins in India and Europe businesses.
Brokerage: Emkay | Rating: Hold | Target: Rs 453
Emkay has revised volume and margins estimates for the domestic business. It believes that current performance will be tough to repeat given RM volatility and steel prices.
Brokerage: Credit Suisse | Rating: Outperform
The brokerage highlighted that the company’s numbers comfortably beat expectations by a wide margins due to improvements across operations.
In Europe, EBITDA was recorded at a 9-year high due to higher ASPs, lagged flowthrough of coking coal prices and 10 percent higher than usual sales.
Meanwhile, the debt situation looks like it has peaked. Tata's net debt fell Rs 43 billion QoQ. “With a modest capex guidance for next year (Rs64-70 bn), and healthy profitability, its net debt has most likely peaked. It is also now close to resolving the pension issue,” the report added.
Global brokerage firm Macquarie said that the company’s EBITDA beat was driven by significant surprise in India and Europe margins, said Macquarie. The guidance of no capex expansion in this fiscal and UK pension talks being in final stages are key positives for the company, it said.
Macquarie sees Q4FY17 as the peak of margins and earnings and any near term rally is a chance to exit. On margins, it does not feel that current levels are sustainable. The contraction in margin in India and Europe business are key catalysts for the stock, it added.
The stock has seen strong movements in the recent past, rising 4 percent in the past one month, while its three-day gain stood at 10 percent. At 09:36 hrs, Tata Steel was quoting at Rs 478.75, up Rs 21.75, or 4.76 percent on the BSE. It touched an intraday high of Rs 479.00 and an intraday low of Rs 466.00.