Tata Steel Q3 Results Review - India Earnings Shine; UK Transition In Progress: Centrum Broking

Centrum Broking Report

Tata Steel Ltd.'s reported adjusted consolidated Ebitda of Rs 57.4 billion, up 33% QoQ (our estimate: Rs 47.2 billion) primarily due to outperformance at standalone business offsetting Europe losses.

The standalone business adjusted Ebitda stood at Rs 82.5 billion (our estimate: Rs 71.1 billion); up 20% QoQ primarily due to cost saving from captive pellet utilisation, blending of lower grade coking coal and lower purchase cost of semi products.

The blended realisation was flattish QoQ offset by marginal rise in sales volume QoQ As a result, Adjusted Ebitda/tonne stood at Rs 16,905/tonne (Centrum: Rs 14,574/tonne) up 19% QoQ.

Tata Steel Netherlands relining of blast furnace is expected to complete by January 2024 end and U.K. business to shut its BF fully by CY24 end. For Q4 FY24, management guided lower steel prices and higher raw material cost to impact domestic margins.

For Netherlands margins to further deteriorate while steel price increase due to red sea crisis to lower some losses in U.K. We factored in higher losses in Europe for FY24 and expect delay in U.K transition to lead FY25 also into losses

As a result, our target price has reduced to Rs 128 (Earlier: Rs133/sh), valuing India business at 6x average FY25E/FY26 enterprise value /Ebitda and Europe at 4 times average FY25E/FY26E EV/Ebitda. Maintain 'Add'.

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