Cost reduction, higher prices key monitorables for Tata Steel stock

Standalone blended realisation at Rs 60,591 per tonne was lower by 8.7 per cent YoY and 0.8 per cent QoQ

Tata Steel’s consolidated Ebitda (earnings before interest, taxes, depreciation and amortisation) at ₹ 6,560 crore for the fourth quarter of financial year 2024-25 (Q4FY25) declined 0.6 per cent year-on-year (Y-o-Y) but improved 11.1 per cent on a quarter-on-quarter (Q-o-Q) basis.

 

Standalone Ebitda at ₹6,980 crore shrunk by 13.6 per cent Y-o-Y and 6.9 per cent Q-o-Q, impacted by lower steel realisation, partly offset by higher volumes.

 

The good news was better performance from the Netherlands operations.

 

Standalone blended realisation at ₹60,591 per tonne was lower by 8.7 per cent Y-o-Y and 0.8 per cent Q-o-Q. Standalone Ebitda per tonne at ₹12,463 was lower by 16.4 per cent Y-o-Y and 12.1 per cent Q-o-Q. The Q3FY25 Ebitda had benefited by ₹1,400 crore from a reversal of regulatory provision.

 

Management expects domestic Q1FY26 steel prices to improve by ₹3,000 per tonne aided by safeguard duties and also coking coal consumption costs to decline by $10 per tonne sequentially.   

 

Tata Steel Netherlands reported an Ebitda of ₹120 crore (vis-à-vis an Ebitda loss of ₹1 crore in Q3FY25) while Tata Steel UK reported an Ebitda loss of ₹870 crore (vis-à-vis an ₹ loss of ₹740 crore in Q3FY25).

 

Consolidated Q4FY25 net debt declined 3.8 per cent to ₹82,600 crore versus ₹85,800 crore at the end of December 2024. Net debt to Ebitda declined marginally Q-o-Q to 3.2 times. Targeted net debt to Ebitda is 2.5-3.0 times across cycles.

 

Standalone Ebitda was primarily impacted by lower realisation partly offset by higher volumes.

 

Standalone steel volume at 5.6 million tonnes (MT) grew by 3.3 per cent Y-o-Y and 5.9 per cent Q-o-Q. NINL (Neelachal Ispat Nigam) is now operating at rated capacity with FY25 Ebitda of ₹1,000 crore. 

 

Tata Steel Netherlands’ improved Ebitda of ₹120 crore on a sequential basis was aided by higher volumes and lower input costs. Volumes grew 14 per cent.

 

The Netherlands’ business is undergoing a transformation program to reduce controllable costs across operations. The target is €500 million reduction from FY26 onwards and manpower reduction of 1,600 employees contributing €180 million by FY27.

 

Tata Steel UK reported a higher Ebitda loss of ₹870 crore sequentially with both blast furnaces shut at Port Talbot. It is now operating as a finishing facility with purchased substrate from India, Netherlands, and external sources. Tata Steel UK is expected to break-even in a couple of quarters with targeted cost savings of ₹3,000 crore.

 

Tata Steel spent ₹3,200 crore on capex in Q4FY25 for Kalinganagar expansion and Ludhiana electric arc furnace (EAF). The Kalinganagar 5 MT per annum ramp-up and 2.2 MT per annum CRM (cold rolling mill) would support profitability. Management expects completion of 0.75 MT EAF expansion at Ludhiana in FY26.   

 

The transition to green steel in the UK and structural cost reduction initiatives in the Netherlands would lead to European operations going Ebitda positive.

 

Management guidance for FY26 volumes are 1.5 MT higher than FY25, primarily from Indian operations with a targeted cost saving of Rs 4,000 crore.

 

Planned capex is ₹15,000 crore in FY26, with 75 per cent allocated to India for the final Phase of Kalinganagar, 0.75 MT Ludhiana, and 0.5 MT combi mill at Gamharia. The remaining 25 per cent will be spent in Europe.

 

Domestic steel prices have risen post February by ₹3,000 per tonne in anticipation of safeguard duty and global prices also improved by €20-30 per tonne post US tariff talks. Soft coking coal consumption costs are also expected.

 

The future could see breakeven in Tata Steel UK and incremental 1.5 MT volumes from Tata Steel India, and improved performance of Tata Steel Netherlands.

 

Management targets cost savings of ₹11,500 crore for FY26 for consolidated operations. This is expected to be visible from Q2FY26 onwards. If Europe picks up according to schedule, there’s cause for optimism.

 

According to Bloomberg, 14 of the 24 analysts polled post Q4 are bullish, six are bearish and four are neutral on the stock. Their average one-year target price is ₹161.33 for the stock which has gained 2.5 per cent post results. It closed at ₹155.30 on Wednesday on the BSE.