 "Tata Steel")
Divergent cyclical trends in steel markets were evident in the results for Tata Steel for the January-March quarter of the 2022-23 financial year (Q4FY23). The standalone results, which are India-focussed, display rise in margins and earnings before interest, tax, depreciation and amortisation (Ebitda), per tonne while the consolidated results, which include the European (and UK) trends, show decline in margins and operating losses.
At consolidated level, sales volume for Q4FY23 stood at 7.78 MT or million tonnes (down 3 per cent year-on-year or YoY but up 9 per cent quarter-on-quarter or QoQ). Averaged sales prices were down 6 per cent YoY and almost flat QoQ. Revenue was at Rs 63,000 crore (down 9 per cent YoY and up 10 per cent QoQ). Volumes were higher in both India and Europe.
Consolidated Ebitda stood at Rs 7,200 crore (down 52 per cent YoY and up 78 per cent QoQ), while average Ebitda per tonne of Rs 9,279 was down 51 per cent YoY and up 64 per cent QoQ. Ebitda declines can be largely attributed to higher costs and lower Europe realisation. The adjusted PAT (profit after tax) was Rs 1,700 crore (minus 83 per cent YoY, and flat QoQ), due to higher finance costs, higher taxes, and lower other income.
For FY23, consolidated revenue was Rs 2,43,400 crore which was flat YoY, but Ebitda was at Rs 32,300 crore down 50 per cent YoY and adjusted PAT was Rs 8,600 crore down 79 per cent YoY. Sales volumes were at 28.8 MT, down 4 per cent YoY. The volumes were supported by NINL (Neelachal Ispat Nigam) that began its operations in Q4FY23.
Capex during the quarter was Rs 4,400 crore (FY23 capex was Rs 14,100 crore) and work at the 5 MT Kalinganagar plant and 0.75 MT EAF mill in Punjab is progressing. The 6 MT pellet plant at Kalinganagar has started production. The company took an impairment charge of Rs 11,070 crore against the possibility it may need to transition the UK plant to green without UK government support.
Steel consumption is up 13-14 per cent domestically. Gross debt reduced by Rs 2,800 crore to Rs 84,900 crore versus Rs 87,600 crore in Q3. Net debt was at Rs 67,800 crore. The net debt/Ebitda stood at 2.07x during the quarter, and the debt:equity remained good at 0.6x. Guidance indicates coal costs will rise in Q1FY24 although coal prices have fallen since the company has to mop up coal inventory. However, there will be lower coal costs in lagged fashion from Q2FY24.
The global steel cycle may have just about bottomed out in Q3FY23. The Europe Ebitda per tonne and volumes improved QoQ and Ebitda per tonne (consolidated) was up almost 3x in Q4 versus Q3. Domestic average price was up QoQ by Rs 2,453 per tonne and domestic Ebitda per tonne was at Rs 16,326 (down 34 per cent YoY and up 45 per cent QoQ). The domestic (standalone) Ebitda margin was up 6.8 per cent QoQ to 23.7 per cent while overall consolidated margin was 11 per cent.
Domestic sales to the auto sector in FY23 stood at 4.2 MT (up 11 per cent YoY), while construction & infrastructure sales were at 4.6 MT (up 10 per cent YoY). The sales to engineering sector stood at 2 MT (+10 per cent YoY) and retail construction sales stood at 2.8 MT (up 12 per cent YoY).
Both -- globally and domestically -- consumption is running above pre-Covid-19 levels in most sectors except for automobiles in Europe. But realisations are way below the peaks hit in FY22. Cost of finance is up due to rate hikes. Analyst opinions range between ‘hold’ and ‘buy’ with valuations ranging between Rs 110 (nearly current market price) and Rs 132.
