Tata Steel Q2 Review- Improved Capacity, Cost Cutting, Drives Sustainability In Weak Global Macros: Systematix

Systematix Research Report

Tata Steel Netherlands’s turned Ebitda positive in Q1 FY25, however, the Ebitda contracted during the quarter due to weaker European demand, lower realisations and higher other expenses on account of emission, consumables and bulk gas related costs.

The transition phase at Tata Steel UK with the planned de-commissioning of two blast furnaces was also marked by higher costs building further margin pressure in a subdued demand environment, a trend likely to spill into Q3 and Q4. Tata Steel Ltd. maintains 1.4 million tonne incremental volume guidance in FY25, net of intersegment deliveries, primarily from the commissioning of 5mt Kalinganagar expansion. The 5 mt KPO II expansion is estimated to produce 3.5 and over 4.5 mt volumes in FY26 and FY27, respectively.

We revise our FY25/FY26 Ebitda estimates lower by 29%/9% and introduce FY27 estimates. Our estimate revision factors in-

1. Europe’s weak demand dynamics,

2. Tata Steel UK’s high cost transition to downstream operations, and

3. subdued India steel pricing impacted by heightened imports from China, partially offset by incremental volumes and resulting cost efficiencies from India expansions, and lower raw material costs.

We value Tata Steel’s India and Europe businesses at 6.5x and 5x FY27E EV/Ebitda, respectively, arriving at a marginally revised target price of Rs 170/share (Rs 169/share earlier). Our price target revision factors in higher net debt at the end of this quarter. We maintain Hold rating on the stock.

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