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Tata Steel
Good F3Q11 Results Indicate Potential for Strong C1H11
What's new: Tata Steel announced good consolidated
PAT for F3Q11 of Rs10bn, up 112% YoY and down 49%
QoQ. This was 19% ahead of our expectations. For us,
the surprise came largely from Tata Steel Europe, which
registered EBITDA of US$25/t versus our expectation of
US$10/t. This difference largely reflected average
realizations of US$1,163/t in the European business
versus our expectation of US$1,113/t.
Why we are positive on Tata: 1) Likelihood of
meaningfully strong earnings in C1H11 driven by a
widening gap between steel prices and raw materials
costs; 2) solid progress on Tata’s high-return projects in
India, 3) improving balance sheet; and 4) perceptible
augmentation of raw materials integration at Tata
Europe.
Highlights of F3Q11 performance:
Consolidated EBITDA of Rs29.4bn was 20% lower QoQ
and flat YoY and 4% ahead of our estimates.
Standalone EBITDA per ton stood at US$373, implying
an increase of US$21/t QoQ. Realizations increased by
6% QoQ to Rs41,375/t owing to higher deliveries to the
auto sector.
Production volume was 1.75 mt, an increase of 9% QoQ
and 4% YoY. Sales volume at 1.63mt fell 1% QoQ. Tata
should be able to sell higher volumes in F4Q11 as prices
should be materially higher than in F3Q11.
Tata Europe EBITDA per ton shrunk 55% QoQ to
US$25 as raw materials costs went up by about US$15
while realizations increased just by US$3/t. Sales
volume in Tata Europe was down 2% QoQ and 8% YoY
to 3.47mt.
Key Highlights from the Conference Call
Orissa project is picking up pace. We feel this, along with
commissioning of the 3mt brownfield expansion at
Jamshedpur, could be a significant stock trigger in next 12
months.
Management feels that raw materials cost inflation must be
passed on to its customers in Tata Europe.
The company expects strong steel demand in India of 10-12%
in F2012, although it did highlight the slow pace of
infrastructure project approvals as a potential risk factor.
Tata targets 6.4mt sales in F2011 in India, in line with our
assumption.
Other Highlights
Consolidated net debt at end-F3Q11 rose to US$11.8bn vs.
US$10.7bn at end-F2Q11 largely due to the increase in
working capital requirements at Tata Europe, increased
investment in for the 3mt expansion project, and adverse
exchange fluctuation impact.
Tata Steel Asia clocked negative EBITDA of US$3mn versus
US$29mn in F2Q11 and US$24mn in F3Q10. The loss was
caused by a jump in scrap prices earlier than steel price
increases. We expect Tata Asia’s earnings to rebound
meaningfully in next six months on rapidly increasing steel
prices.
Consolidated other income was Rs3.8bn. Although lower than
the Rs8.1bn in F2Q11, it was well supported by carbon credits
of £35mn, even after adjusting for £20mn of debit from the fire
at the Ijmuiden pickling line no.3.
Interest cost increased to Rs7.4bn in F3QF11 vs. Rs6.6bn in
F2Q11 and Rs7.6bn in F3Q10. The sequential increase was
partly due to higher working capital requirements at Tata
Europe with increase raw materials costs
Company Description
Tata Steel, a flagship company of the Tata group, is the
second-largest steel maker in India. It has capacity of 5mtpa and
a high level of vertical integration. Its sales basket is 40% long
products and 60% flat products. It has brownfield expansion
plans of 5mtpa and greenfield expansion plans of 11mtpa at
various stages of implementation. Tata Steel purchased
UK-based Corus Group Plc for an enterprise value of
US$13.5bn, after which it has become the sixth-largest steel
maker globally, with total capacity of about 24mtpa.
India Steel
Industry View: Attractive
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel
Good F3Q11 Results Indicate Potential for Strong C1H11
What's new: Tata Steel announced good consolidated
PAT for F3Q11 of Rs10bn, up 112% YoY and down 49%
QoQ. This was 19% ahead of our expectations. For us,
the surprise came largely from Tata Steel Europe, which
registered EBITDA of US$25/t versus our expectation of
US$10/t. This difference largely reflected average
realizations of US$1,163/t in the European business
versus our expectation of US$1,113/t.
Why we are positive on Tata: 1) Likelihood of
meaningfully strong earnings in C1H11 driven by a
widening gap between steel prices and raw materials
costs; 2) solid progress on Tata’s high-return projects in
India, 3) improving balance sheet; and 4) perceptible
augmentation of raw materials integration at Tata
Europe.
Highlights of F3Q11 performance:
Consolidated EBITDA of Rs29.4bn was 20% lower QoQ
and flat YoY and 4% ahead of our estimates.
Standalone EBITDA per ton stood at US$373, implying
an increase of US$21/t QoQ. Realizations increased by
6% QoQ to Rs41,375/t owing to higher deliveries to the
auto sector.
Production volume was 1.75 mt, an increase of 9% QoQ
and 4% YoY. Sales volume at 1.63mt fell 1% QoQ. Tata
should be able to sell higher volumes in F4Q11 as prices
should be materially higher than in F3Q11.
Tata Europe EBITDA per ton shrunk 55% QoQ to
US$25 as raw materials costs went up by about US$15
while realizations increased just by US$3/t. Sales
volume in Tata Europe was down 2% QoQ and 8% YoY
to 3.47mt.
Key Highlights from the Conference Call
Orissa project is picking up pace. We feel this, along with
commissioning of the 3mt brownfield expansion at
Jamshedpur, could be a significant stock trigger in next 12
months.
Management feels that raw materials cost inflation must be
passed on to its customers in Tata Europe.
The company expects strong steel demand in India of 10-12%
in F2012, although it did highlight the slow pace of
infrastructure project approvals as a potential risk factor.
Tata targets 6.4mt sales in F2011 in India, in line with our
assumption.
Other Highlights
Consolidated net debt at end-F3Q11 rose to US$11.8bn vs.
US$10.7bn at end-F2Q11 largely due to the increase in
working capital requirements at Tata Europe, increased
investment in for the 3mt expansion project, and adverse
exchange fluctuation impact.
Tata Steel Asia clocked negative EBITDA of US$3mn versus
US$29mn in F2Q11 and US$24mn in F3Q10. The loss was
caused by a jump in scrap prices earlier than steel price
increases. We expect Tata Asia’s earnings to rebound
meaningfully in next six months on rapidly increasing steel
prices.
Consolidated other income was Rs3.8bn. Although lower than
the Rs8.1bn in F2Q11, it was well supported by carbon credits
of £35mn, even after adjusting for £20mn of debit from the fire
at the Ijmuiden pickling line no.3.
Interest cost increased to Rs7.4bn in F3QF11 vs. Rs6.6bn in
F2Q11 and Rs7.6bn in F3Q10. The sequential increase was
partly due to higher working capital requirements at Tata
Europe with increase raw materials costs
Company Description
Tata Steel, a flagship company of the Tata group, is the
second-largest steel maker in India. It has capacity of 5mtpa and
a high level of vertical integration. Its sales basket is 40% long
products and 60% flat products. It has brownfield expansion
plans of 5mtpa and greenfield expansion plans of 11mtpa at
various stages of implementation. Tata Steel purchased
UK-based Corus Group Plc for an enterprise value of
US$13.5bn, after which it has become the sixth-largest steel
maker globally, with total capacity of about 24mtpa.
India Steel
Industry View: Attractive
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