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Still No Light At The End Of The Tunnel
Tata Steel’s consolidated 2QFY12 results were below expectations, as it
reported 13%/15% lower EBITDA compared to our/consensus estimates,
respectively (adjusted EBITDA is 6%/9% below estimates). This was primarily
because of disappointment in domestic operations, as standalone EBITDA was
10% below our estimate due to 25% QoQ rise in other expenses despite flat
production. A negative forex impact of Rs2,200mn and higher royalty expenses
led to a sharp sequential jump in other expenses. We have revised our
earnings estimates by 14% and 0.3% for FY12 and FY13, respectively. We retain
our Sell rating on Tata Steel with a revised TP of Rs358 (down 4% against
previous TP of Rs 371), which is 20% below the CMP.
Domestic EBITDA/tonne drops sharply on sequential basis: Despite a marginal
increase in blended realisation QoQ, the company reported a 14% QoQ drop in
EBITDA/tonne to Rs16,685/tonne because of the reasons mentioned above. Total
blended costs increased 7% compared to our estimate. Volume during the quarter
stood at 1.66mt, flat YoY but up 4% QoQ.
Europe volume was stronger than expectation: Tata Steel Europe reported a 7%
higher volume compared to our estimate, at 3.48mt, but this was partially offset by a
marginal 4% decline in expected realisation. EBITDA/tonne for the quarter stood at
US$30/tonne, compared to our expectation of US$3/tonne.
South-East Asian operations update: Tata Steel reported almost flat volume of
South-East Asian arms in 2QFY12, but EBITDA fell drastically to US$5mn from
US$29mn in 2QFY11 and US$20mn in 1QFY12.
Other highlights: The Benga project is expected to commence operations in
2HFY12 and produce run-of-mine output of 5.3mt in FY13. Tata Steel group had net
debt of US$8,412mn at the end of 2QFY12 compared to US$8,337mn at the end of
1QFY12. It incurred a capex of US$557mn during 2QFY12. Pension balance
continues to remain in surplus, but net surplus dropped from US$350mn at the end of
1QFY12 to US$106mn. The effective tax rate of 87% is due to higher taxes paid by
profit-making arms, which cannot be fully set off against the loss-making ones.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Still No Light At The End Of The Tunnel
Tata Steel’s consolidated 2QFY12 results were below expectations, as it
reported 13%/15% lower EBITDA compared to our/consensus estimates,
respectively (adjusted EBITDA is 6%/9% below estimates). This was primarily
because of disappointment in domestic operations, as standalone EBITDA was
10% below our estimate due to 25% QoQ rise in other expenses despite flat
production. A negative forex impact of Rs2,200mn and higher royalty expenses
led to a sharp sequential jump in other expenses. We have revised our
earnings estimates by 14% and 0.3% for FY12 and FY13, respectively. We retain
our Sell rating on Tata Steel with a revised TP of Rs358 (down 4% against
previous TP of Rs 371), which is 20% below the CMP.
Domestic EBITDA/tonne drops sharply on sequential basis: Despite a marginal
increase in blended realisation QoQ, the company reported a 14% QoQ drop in
EBITDA/tonne to Rs16,685/tonne because of the reasons mentioned above. Total
blended costs increased 7% compared to our estimate. Volume during the quarter
stood at 1.66mt, flat YoY but up 4% QoQ.
Europe volume was stronger than expectation: Tata Steel Europe reported a 7%
higher volume compared to our estimate, at 3.48mt, but this was partially offset by a
marginal 4% decline in expected realisation. EBITDA/tonne for the quarter stood at
US$30/tonne, compared to our expectation of US$3/tonne.
South-East Asian operations update: Tata Steel reported almost flat volume of
South-East Asian arms in 2QFY12, but EBITDA fell drastically to US$5mn from
US$29mn in 2QFY11 and US$20mn in 1QFY12.
Other highlights: The Benga project is expected to commence operations in
2HFY12 and produce run-of-mine output of 5.3mt in FY13. Tata Steel group had net
debt of US$8,412mn at the end of 2QFY12 compared to US$8,337mn at the end of
1QFY12. It incurred a capex of US$557mn during 2QFY12. Pension balance
continues to remain in surplus, but net surplus dropped from US$350mn at the end of
1QFY12 to US$106mn. The effective tax rate of 87% is due to higher taxes paid by
profit-making arms, which cannot be fully set off against the loss-making ones.
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