Tata Steel - Present Tense, Future Perfect; Result Update Q2FY15 :: Edelweiss, PDF link

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Tata Steel’s (Tata) Q2FY15 consolidated EBITDA of INR36.4bn (flat YoY) was ~7% below estimate due to weak performance by South East Asia (SEA) operations, though partially negated by robust performance in India. SEA’s margins suffered from low-cost Chinese imports. Standalone EBITDA surpassed our estimate by ~19% on better volumes and realisations. Tata Steel Europe (TSE) reported EBITDA/t of USD46 (up ~77% YoY) and sales volume of 3.4mt (down 3% YoY), which was broadly in line. Tata reported extraordinary gain of INR11.5bn on sale of land. Adjusting for this, consolidated PAT at INR1.0bn lagged our estimate. We are positive on Tata led by steel volume growth and margin improvement in India by FY16E over FY14 levels. However, we cut FY15E/FY16E EBITDA by ~8/4% mainly led by cut in SEA and ferro alloy business profits.

India operations: Stellar performance

Tata reported standalone EBITDA of INR30.9bn (up ~5% YoY, down ~5% QoQ) against INR26.0bn estimate led by higher revenue (~13% above estimate) though partially negated by higher-than-expected total costs (~11% above estimate). Sales volume and EBITDA/t at 2.1mt (up ~4% YoY) and INR14.7k/t (up ~2% YoY), respectively, were better than expectations.

International operations: SEA spoils the show

EBITDA of international operations at INR5.5bn (down ~29% YoY, ~46% QoQ) missed our INR13.0bn estimate owing to dismal performance by SEA. SEA recorded negative EBITDA of USD46mn as margins suffered from low-cost imports from China. TSE reported EBITDA/t of USD46 and sales volume of 3.4mt, which were broadly in line.

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