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Tata Steel (TATA IN, Rs616.60, Buy) – 3QFY11 results above expectations
3QFY11 consolidated results were above our expectation with subsidiary earnings not as weak
as expected. Consolidated EBITDA was Rs29.4bn and total deliveries were at 5.68mt. Domestic
operations continued to be robust and were largely in-line with expectations.
Lower than expected raw material costs drive consolidated results
Tata Steel consolidated revenues were at Rs286bn (-0.1% qoq and +9.7% yoy) in-line with
our estimate. Subsidiary sales volumes were at 4.28mt (-1% qoq and -7% yoy). Average
subsidiary realization was US$1,106/tonne, increasing 3% qoq. Impact of raw material costs
were not as high as we expected and subsidiary EBITDA/tonne was US$10/tonne versus our
estimate of a loss of US$7/tonne. This drove consolidated EBITDA to Rs29.4bn (-19.9% qoq
and +4.4% yoy). Sales of carbon credits boosted other income to Rs3.8bn. Company expects
a run rate of 35mn pounds per quarter going forward on sale of carbon credits with European
capacity only running at 75-80% utilization. Consolidated net profit was Rs10.0bn (-49% qoq
and +112% yoy).
Standalone results largely in-line with expectations
Tata Steel standalone net revenues were at Rs73.2bn (+4.1% qoq and +16.1% yoy) in-line
with our expectation of Rs72.4bn. Production volumes were at 1.75mt (+8.8% qoq and +3.8%
yoy) and saleable steel volumes were at 1.63mt (-1.4% qoq and +2.5% yoy). Average
realization was US$919/tonne (+5.7% qoq and +13.3% yoy) higher than our estimate of
US$892/tonne due to better mix for the quarter. EBITDA was Rs27.5bn (+7.3% qoq and
+31.5% yoy) versus our estimate of Rs25.8bn. EBITDA/tonne was US$373/tonne (+8.8% qoq
and +28.3% yoy). Net profit was Rs15.1bn (-26.7% qoq and +27% yoy) versus our estimate
of Rs14.3bn.
1QFY12 coking coal contract price could be in US$300/tonne range
Coking coal costs for the domestic operations are expected to remain relatively flattish in
4QFY11 with its 50% backward integration, but its European operations is likely to face higher
raw material costs. The company does carry a higher stock of inventory (about 80 days
versus norm of 45-60 days) which will mute the cost pressures. Management highlighted that
coking coal contract prices for 1QFY12 could be in the range of US$300/tonne in the wake of
the Queensland floods.
DSO iron ore project to start production by 2QCY12
New Millennium Limited (NML), Canada which Tata Steel has a 27.16% stake in along with
off-take rights, has now received environmental clearance for phase I of the Direct Shipping
Ore (DSO) project. Iron ore production is expected to start by 2QCY12.
Odisha greenfield project update
The ground preparation work is progressing at the project site in Odisha for its 3mt greenfield
project. The project site has been secured with boundary wall and fence and infrastructure
work has commenced.
We retain our estimates for Tata Steel. We have a Buy rating with target price of Rs716.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Tata Steel (TATA IN, Rs616.60, Buy) – 3QFY11 results above expectations
3QFY11 consolidated results were above our expectation with subsidiary earnings not as weak
as expected. Consolidated EBITDA was Rs29.4bn and total deliveries were at 5.68mt. Domestic
operations continued to be robust and were largely in-line with expectations.
Lower than expected raw material costs drive consolidated results
Tata Steel consolidated revenues were at Rs286bn (-0.1% qoq and +9.7% yoy) in-line with
our estimate. Subsidiary sales volumes were at 4.28mt (-1% qoq and -7% yoy). Average
subsidiary realization was US$1,106/tonne, increasing 3% qoq. Impact of raw material costs
were not as high as we expected and subsidiary EBITDA/tonne was US$10/tonne versus our
estimate of a loss of US$7/tonne. This drove consolidated EBITDA to Rs29.4bn (-19.9% qoq
and +4.4% yoy). Sales of carbon credits boosted other income to Rs3.8bn. Company expects
a run rate of 35mn pounds per quarter going forward on sale of carbon credits with European
capacity only running at 75-80% utilization. Consolidated net profit was Rs10.0bn (-49% qoq
and +112% yoy).
Standalone results largely in-line with expectations
Tata Steel standalone net revenues were at Rs73.2bn (+4.1% qoq and +16.1% yoy) in-line
with our expectation of Rs72.4bn. Production volumes were at 1.75mt (+8.8% qoq and +3.8%
yoy) and saleable steel volumes were at 1.63mt (-1.4% qoq and +2.5% yoy). Average
realization was US$919/tonne (+5.7% qoq and +13.3% yoy) higher than our estimate of
US$892/tonne due to better mix for the quarter. EBITDA was Rs27.5bn (+7.3% qoq and
+31.5% yoy) versus our estimate of Rs25.8bn. EBITDA/tonne was US$373/tonne (+8.8% qoq
and +28.3% yoy). Net profit was Rs15.1bn (-26.7% qoq and +27% yoy) versus our estimate
of Rs14.3bn.
1QFY12 coking coal contract price could be in US$300/tonne range
Coking coal costs for the domestic operations are expected to remain relatively flattish in
4QFY11 with its 50% backward integration, but its European operations is likely to face higher
raw material costs. The company does carry a higher stock of inventory (about 80 days
versus norm of 45-60 days) which will mute the cost pressures. Management highlighted that
coking coal contract prices for 1QFY12 could be in the range of US$300/tonne in the wake of
the Queensland floods.
DSO iron ore project to start production by 2QCY12
New Millennium Limited (NML), Canada which Tata Steel has a 27.16% stake in along with
off-take rights, has now received environmental clearance for phase I of the Direct Shipping
Ore (DSO) project. Iron ore production is expected to start by 2QCY12.
Odisha greenfield project update
The ground preparation work is progressing at the project site in Odisha for its 3mt greenfield
project. The project site has been secured with boundary wall and fence and infrastructure
work has commenced.
We retain our estimates for Tata Steel. We have a Buy rating with target price of Rs716.
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