Tata Steel Q2 Review: Shares Decline As Profit Misses Estimates

Shares of Tata Steel Ltd. declined after the company reported a weaker-than-expected profit in the second quarter.

Tata Steel's Q2 Ebitda fell 60% quarter on quarter, and was 21% below Jefferies estimates mainly led by the weak performance of India business, Jefferies said in its investor note.

The Ebitda was much weaker than consensus expectations, and the miss was on both standalone and subs levels, Morgan Stanley added.

Tata Steel Q2 FY23 Highlights (Consolidated YoY)

• Consolidated net profit declined 87% to Rs 1,514.4 crore, compared with the estimated Rs 3,154.7 crore.

• Ebitda declined 62% to Rs 6,271 crore against teh Rs 7,485.87-crore forecast.

• Ebitda margin fell to 10.5% from 27.5%, against a forecast of 13.3%.

The stock fell as much as 2.9% intraday before paring losses with a decline of 1.03%, while the benchmark Nifty 50 gained 0.55% on the NSE. Total traded volumes stood at 1.6 times the 30-day average, according to data on Bloomberg.

Of the 34 analysts tracking the company, 24 maintain a 'buy', four suggest a 'hold' while six recommend a 'sell'. The 12-month consensus price target implies an upside of 22.4%.

Here's what analysts made of Tata Steel's quarterly results:

• Downgraded the stock rating to 'sell' from 'underperform' and cut target price to Rs 90 from Rs 110.

• This is a potential downside of 11%.

• Cut FY23-25 Ebitda estimates by 18-25% on lower profitability.

• Expects Indian profitability to recover from Q2 lows, but may remain below historical averages.

• The brokerage said as Tata Steel's European profitability plummets, assets could need support from India business.

• Remains 'overweight' with a target price of Rs 140.

• Underlying balance sheet is the strongest it has been in 10+ years and should improve further.

• India steel capacity is 2-3x the previous troughs.

• The brokerage believes the steel market is facing series of one-off issues, which should ease.

• Company's European footprint has materially declined, and India’s should continue to increase.

• Expect Tata Steel's net debt/Ebitda to fall to 1.2x in FY23, 0.9x in FY24 and 0.6x in FY25 compared to the FY16 level of 10x and the FY20 level of 6.1x.

• Reiterates 'buy' rating with a price target of Rs 110.

• New projects are progressing well and should support profitability in the second half of FY23.

• Remains cautious on India steel premised on weak pricing environment, with Tata Steel the only 'buy' on low cost positioning and deleveraging.

• Downside risks are delayed project execution, decline in steel realizations, impact of high gas prices on European profitability, and rise in employee costs.