Tata Steel slips 4%, nears three-year low on weak June quarter results

In the past three months, the stock has underperformed the market by falling 30 per cent, as compared to a three per cent decline in the S&P BSE Sensex.

Shares of Tata Steel were trading near a three-year low of Rs 365, down 4 per cent in the afternoon session on Thursday. The stock has fallen 9 per cent in the past two days.  On Thursday, the company reported a higher-than-expected 64 per cent year-on- year (YoY) decline in its consolidated net profit at Rs 702 crore in April-June quarter (Q1FY20). It had registered profit of Rs 1,934 crore in the year-ago quarter.

The stock was trading at its lowest level since December 27, 2016. In the past three months, it has underperformed the market by falling 30 per cent, as compared to a three  per cent decline in the S&P BSE Sensex.

Tata Steel’s consolidated operational revenue remained flat at Rs 35,382 crore on a YoY basis. The consolidated adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) shrunk 29 per cent in the June quarter, from same period last year, with Ebitda per tonne declining to Rs 8,725, from Rs 10,394.

Bloomberg had estimated Tata Steel’s consolidated net profit to come in at Rs 1,554 crore, while revenue was seen at Rs 37,279 crore.

“During the quarter, steel prices across geographies declined with weakening economic activities and uncertainty around the ongoing US-China trade conflict. This coincided with a sharp rise in iron ore prices due to supply disruptions and elevated coking coal costs. As a result, steel spreads dropped by around US$ 80-100/ton in key markets,” Tata Steel said in a press release.

In Europe, the steel industry faces significant headwinds in terms of lower economic growth, uncertainty around Brexit and the trade conflict. This coupled with rising share of imports and elevated raw material prices have led to a sharp decline in steel spreads, it added.

“Against the backdrop of concerns over the domestic environment, we build in a scenario of no improvement in steel prices and now forecast Tata Steel’s India EBITDA/t for FY20-21 to be lower vs that reported in Q4FY19 (and likely Q1FY20),” analysts at JP Morgan had said in a report dated August 2.

Even at current steel spreads assuming weaker Europe and weak India market, the company should be able to fund its growth capex comfortably and also reduce net debt (though lower than our earlier estimates),” the foreign brokerage firm had written by cutting its December 2019 target price to Rs 575 apiece from Rs 880, earlier.