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Tata Steel (TATA)
Metals & Mining
Weak international operations hurt performance. Tata Steel reported consolidated
EBITDA of Rs27.5 bn (-25.1% yoy), 15.5% lower than our estimate. Net income of
Rs2.1 bn declined 89.3% yoy and was 66.2% lower than our estimate. Miss on
earnings is primarily on the back of PBT loss of Rs12.3 bn in international operations.
Results have a lot of moving parts, clarity for which will emerge post earnings call on
11th November. Financial performance of Tata Steel may be muted in the near term but
is known and built in the stock price. Stock trades at attractive valuations. BUY
A prima-facie weak quarter; standalone operations solid, rest of the operations disappoints
Tata Steel reported standalone EBITDA of Rs27.7 bn, about 5.1% lower than our estimate.
Standalone EBITDA/tonne was US$366, a decline of 15.9% qoq despite largely stable
realization. Entire deviation can be explained by US$40/ tonne increase in other expenditure.
Management has not clarified whether Fx loss of Rs1.5 bn was included in above or below
EBITDA line. Standalone performance was impacted by decline in realization and volume of the
ferro alloy division. Ferro alloy division reported EBIT of US$22 mn
Standalone net income of Rs14.9 bn was 9.6% ahead of our estimate, helped by lower-thanexpected
forex loss which was partly offset by higher-than-expected tax rates
Rest of the businesses (consolidated EBITDA minus standalone EBITDA and comprising of TSE,
South East operations and some domestic businesses) reported loss at the EBITDA level of
Rs197 mn. However Tata Steel presentation indicates that TSE reported EBITDA of Rs5 bn and
EBITDA/ tonne of US$30/ tonne (our estimate was US$5/tonne). We would seek clarifications
for this apparent anomaly
TSE EBITDA on qoq basis was impacted by a combination of (1) US$28 / tonne qoq decline in
realization and (2) US$25/ tonne qoq increase in raw material cost. Steel deliveries were steady
qoq despite 2Q being a seasonally weak quarter. Slowdown in European market will possibly
lead to EBITDA loss in 3QFY12 with improvement likely only by 4Q. Initiatives are already
underway to reduce the cost structure—TSE plans to mothball long product division at
Scunthorpe, eliminate 2500-3000 jobs (7-8% of headcount) and restructure loss making
portfolio are steps in the right direction and may yield results in FY2013E.
Tata Steel reported consolidated net income of Rs2.1 bn, a yoy decline of 89.3% and 66.2%
lower than our estimate. Net income was impacted by (1) EBITDA miss and (2) unusually high
tax rate of 86.7%. The company paid tax of Rs9.1 bn despite PBT loss of Rs12.3 bn in
operations other than Tata Steel standalone entity.
Net debt increases by Rs42 bn qoq to Rs451 bn
Tata Steel’s net debt increased to Rs451 bn on account of (1) Rs27.3 bn spent on capex in
2QFY12 and over Rs60 bn in 1HFY12; (2) increase in working capital cycle contributed by
increase in inventories and debtors. Increase in inventory is not a surprise and reflects high
cost coking coal and iron ore in the stock pile and (3) exchange adjustments. Working
capital cycle will reduce once lower cost raw material supplies start reflecting in inventory
numbers in subsequent quarters.
Tata Steel’s balance sheet quality has improved over the last few quarters and can
comfortably manage leverage even if TSE does not generate any EBITDA over the next few
quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel (TATA)
Metals & Mining
Weak international operations hurt performance. Tata Steel reported consolidated
EBITDA of Rs27.5 bn (-25.1% yoy), 15.5% lower than our estimate. Net income of
Rs2.1 bn declined 89.3% yoy and was 66.2% lower than our estimate. Miss on
earnings is primarily on the back of PBT loss of Rs12.3 bn in international operations.
Results have a lot of moving parts, clarity for which will emerge post earnings call on
11th November. Financial performance of Tata Steel may be muted in the near term but
is known and built in the stock price. Stock trades at attractive valuations. BUY
A prima-facie weak quarter; standalone operations solid, rest of the operations disappoints
Tata Steel reported standalone EBITDA of Rs27.7 bn, about 5.1% lower than our estimate.
Standalone EBITDA/tonne was US$366, a decline of 15.9% qoq despite largely stable
realization. Entire deviation can be explained by US$40/ tonne increase in other expenditure.
Management has not clarified whether Fx loss of Rs1.5 bn was included in above or below
EBITDA line. Standalone performance was impacted by decline in realization and volume of the
ferro alloy division. Ferro alloy division reported EBIT of US$22 mn
Standalone net income of Rs14.9 bn was 9.6% ahead of our estimate, helped by lower-thanexpected
forex loss which was partly offset by higher-than-expected tax rates
Rest of the businesses (consolidated EBITDA minus standalone EBITDA and comprising of TSE,
South East operations and some domestic businesses) reported loss at the EBITDA level of
Rs197 mn. However Tata Steel presentation indicates that TSE reported EBITDA of Rs5 bn and
EBITDA/ tonne of US$30/ tonne (our estimate was US$5/tonne). We would seek clarifications
for this apparent anomaly
TSE EBITDA on qoq basis was impacted by a combination of (1) US$28 / tonne qoq decline in
realization and (2) US$25/ tonne qoq increase in raw material cost. Steel deliveries were steady
qoq despite 2Q being a seasonally weak quarter. Slowdown in European market will possibly
lead to EBITDA loss in 3QFY12 with improvement likely only by 4Q. Initiatives are already
underway to reduce the cost structure—TSE plans to mothball long product division at
Scunthorpe, eliminate 2500-3000 jobs (7-8% of headcount) and restructure loss making
portfolio are steps in the right direction and may yield results in FY2013E.
Tata Steel reported consolidated net income of Rs2.1 bn, a yoy decline of 89.3% and 66.2%
lower than our estimate. Net income was impacted by (1) EBITDA miss and (2) unusually high
tax rate of 86.7%. The company paid tax of Rs9.1 bn despite PBT loss of Rs12.3 bn in
operations other than Tata Steel standalone entity.
Net debt increases by Rs42 bn qoq to Rs451 bn
Tata Steel’s net debt increased to Rs451 bn on account of (1) Rs27.3 bn spent on capex in
2QFY12 and over Rs60 bn in 1HFY12; (2) increase in working capital cycle contributed by
increase in inventories and debtors. Increase in inventory is not a surprise and reflects high
cost coking coal and iron ore in the stock pile and (3) exchange adjustments. Working
capital cycle will reduce once lower cost raw material supplies start reflecting in inventory
numbers in subsequent quarters.
Tata Steel’s balance sheet quality has improved over the last few quarters and can
comfortably manage leverage even if TSE does not generate any EBITDA over the next few
quarters.
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