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Tata Steel
2Q results disappoint; worst
yet to come
�� 2Q results disappoint; worst yet to come; Underperform
Adj. Consol. PAT was Rs3.6bn (-75%QoQ) well below consensus & our est. of
Rs9.8bn (post India vols. release).This was led by lower profits in India & TSE,
US$77mn of net losses in non core subsidiaries (see inside) & higher tax rate
(76% in 2Q vs. 43% in 1Q). We have cut our FY12-13 EPS by 10.7-11.9% & our
PO to Rs390. We believe worse is yet to come due to a) further margin squeeze
at TSE in Dec Q; b) potential correction in domestic steel prices. Also losses in
non core subs. will continue to drag overall group profits. Hence Underperform.
TSE: EBITDA decline 62%QoQ; Dec Q to be worse
TSE EBITDA was US$103mn (11% miss). EBITDA/t was US$30/t (-US$48/t
QoQ) vs. our US$34/t est. ASP was down US$28/t QoQ & input cost/t increased
US$23/t QoQ. We think TSE EBIDTA may have also gained from higher other op.
income (US$48mn ex India). Core steel EBITDA was likely lower. Vol.s declined
1%QoQ. TSE ASP lags spot prices & full impact of lower prices should come thru
in Dec Q. Also input costs should remain high due to carry over inventory.
India: EBITDA (-6%QoQ) disappoint; likely to trend lower
Standalone adj. PAT was Rs16.4bn (-6%QoQ), 6% below est. Steel EBITDA/t
declined US$40/t QoQ to US$370/t (BoFAMLe US$376/t) led by higher input
costs. ASP (+1%QoQ) was marginally ahead, but other expenditure (15.5%QoQ)
surprised negatively. Vols. grew 4%QoQ. Dom. steel cos have cut prices by ~3%
recently. More price cuts are likely as dom. prices are still above import parity.
Key takeaways from analyst call
Tata is seeing significant uncertainty in Europe & expects TSE vols. to decline
8%QoQ in 3Q. Input costs at TSE are yet to peak & should be sticky due to lag
impact. Also, ~25% of coking coal contracts are annual contracts. 3mt expansion
in India is on track. Net gearing was US$9.2bn vs. US$8.4bn in June Q.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel
2Q results disappoint; worst
yet to come
�� 2Q results disappoint; worst yet to come; Underperform
Adj. Consol. PAT was Rs3.6bn (-75%QoQ) well below consensus & our est. of
Rs9.8bn (post India vols. release).This was led by lower profits in India & TSE,
US$77mn of net losses in non core subsidiaries (see inside) & higher tax rate
(76% in 2Q vs. 43% in 1Q). We have cut our FY12-13 EPS by 10.7-11.9% & our
PO to Rs390. We believe worse is yet to come due to a) further margin squeeze
at TSE in Dec Q; b) potential correction in domestic steel prices. Also losses in
non core subs. will continue to drag overall group profits. Hence Underperform.
TSE: EBITDA decline 62%QoQ; Dec Q to be worse
TSE EBITDA was US$103mn (11% miss). EBITDA/t was US$30/t (-US$48/t
QoQ) vs. our US$34/t est. ASP was down US$28/t QoQ & input cost/t increased
US$23/t QoQ. We think TSE EBIDTA may have also gained from higher other op.
income (US$48mn ex India). Core steel EBITDA was likely lower. Vol.s declined
1%QoQ. TSE ASP lags spot prices & full impact of lower prices should come thru
in Dec Q. Also input costs should remain high due to carry over inventory.
India: EBITDA (-6%QoQ) disappoint; likely to trend lower
Standalone adj. PAT was Rs16.4bn (-6%QoQ), 6% below est. Steel EBITDA/t
declined US$40/t QoQ to US$370/t (BoFAMLe US$376/t) led by higher input
costs. ASP (+1%QoQ) was marginally ahead, but other expenditure (15.5%QoQ)
surprised negatively. Vols. grew 4%QoQ. Dom. steel cos have cut prices by ~3%
recently. More price cuts are likely as dom. prices are still above import parity.
Key takeaways from analyst call
Tata is seeing significant uncertainty in Europe & expects TSE vols. to decline
8%QoQ in 3Q. Input costs at TSE are yet to peak & should be sticky due to lag
impact. Also, ~25% of coking coal contracts are annual contracts. 3mt expansion
in India is on track. Net gearing was US$9.2bn vs. US$8.4bn in June Q.
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