Tata Steel Ltd (Q3 FY13)

India Infoline News Service | Mumbai |

Consolidated revenue of Rs321bn was lower than estimate of Rs333bn on account of lower domestic realisations and volumes in Europe

CMP Rs376, Target Rs422, Upside 12.2%

  • Consolidated revenue of Rs321bn was lower than estimate of Rs333bn on account of lower domestic realisations and volumes in Europe

  • Operational performance impacted by a forex loss of Rs1.5bn and some restructuring costs in the European operations

  • Standalone operating profit was inline with our estimate led by a decline in raw material costs and higher volumes

  • Adjusted EBIDTA/ton at Corus decreased sharply from -US$2 in Q2 FY13 to -US$26 due to lower volumes and one-off costs related to restructuring

  • South East Asia operations EBIDTA improved sequentially to US$26mn

  • Maintain BUY with a revised 9-month price target of Rs422

Result table (Standalone)
(Rs mn) Q3 FY13 Q2 FY13 % qoq Q3 FY12 % yoy
Net sales 321,071 341,327 (5.9) 331,031 (3.0)
Material costs (139,209) (164,972) (15.6) (175,116) (20.5)
Power and fuel costs (14,431) (14,047) 2.7 (12,511) 15.3
Personnel costs (47,372) (45,393) 4.4 (42,938) 10.3
Other overheads (97,670) (93,814) 4.1 (81,332) 20.1
Operating profit 22,390 23,101 (3.1) 19,133 17.0
OPM (%) 7.0 6.8 21 bps 5.8 119 bps
Depreciation (14,628) (13,349) 9.6 (11,640) 25.7
Interest (10,323) (9,721) 6.2 (10,600) (2.6)
Other income 559 2,018 (72.3) 2,537 (78.0)
PBT (2,003) 2,048 - (570) 251.1
Tax (5,685) (6,608) (14.0) (6,303) (9.8)
Effective tax rate (%) - -   -  
Other prov / minority etc 256 493 (48.2) 847 (69.8)
Adjusted PAT (7,432) (4,066) 82.8 (6,027) 23.3
Adj. PAT margin (%) (2.3) (1.2) (112) bps (1.8) (49) bps
Extra ordinary items (198) 427 - - -
Reported PAT (7,630) (3,639) 109.7 (6,027) 26.6
Ann. EPS (Rs) (30.6) (16.7) 82.8 (25.1) 21.7
Source: Company, India Infoline Research

Lower realisations in India and Europe led to an underperformance in topline

Tata Steel’s topline decreased qoq in rupee terms to Rs321bn, lower than our estimate of Rs333bn. Lower European volumes and lower domestic realisations led to the underperformance in topline. Standalone Indian operations reported an increase of 9.2% qoq and 16.7% yoy in sales volume to 1.89mn tons. Sales volume at its European operations decreased by 11.7% qoq and 9.9% yoy to 3.02mn tons, lower than our estimate of 3.2mn tons. The decline in volumes was due to the shutdown of the Port Talbot blast furnace. Volumes at its South Asian units increased 6.5% qoq to 0.82mn tons. Average blended realizations in India decreased sharply by 6.3% qoq in rupee terms against our expectation of 2%. Realisations in Europe too decreased by 2.8% qoq from US$1,124/ton in Q2 FY13 to US$1,092/ton in Q3 FY13. This was quite lower than our expectation as spot realizations in Europe had declined during the quarter. Realizations at its South East Asia fell sharply by 10.8% qoq to US$768/ton.


Decline in raw material costs offset the impact of a sharp drop in realizations on EBIDTA/ton

Tata Steel India managed to register a flat operating profit qoq at Rs25.3bn, marginally higher than our estimate of Rs24.5bn. The outperformance in operating profit was due to sharp decline in raw material costs and higher steel volumes. OPM during the quarter shrunk 54bps qoq to 27%, lowest over the last three years. Raw material costs per ton of steel decreased 6.5% qoq to Rs12,861 due to lower coking coal prices. In the previous quarter, the company had to buy coking coal from the external market as the coke ovens are expected to start operations only in Q4 FY13. Power and fuel costs per ton of steel too declined on a qoq basis during the quarter. EBIDTA/ton for the standalone entity declined 8.1% qoq and 18.1% yoy to Rs13,366 in Q3 FY13. The decline in EBIDTA/ton was also on account of a forex loss of Rs1.5bn, which is accounted in other expenditure.


Blended per ton cost analysis (Standalone)

Q3 FY13  Q2 FY13 % qoq Q3 FY12 % yoy
Steel production (mn tons) 2.07 1.87 10.7 1.73 19.7
Steel sales (mn tons) 1.89 1.73 9.2 1.62 16.7
Sales as a % of production 91.3 92.5   93.6  
Net realisations (Rs/ton) 49,578 52,893 (6.3) 51,740 (4.2)
Cost per ton (Rs/ton)          
Inventory change          
RM/ton 12,861 13,754 (6.5) 13,196 (2.5)
Staff cost 4,677 4,798 (2.5) 4,526 3.3
Power and fuel costs 3,304 3,397 (2.7) 2,791
BSE 694.95 9.10 (1.33%)
NSE 694.70 8.95 (1.31%)

***Note: This is a NSE Chart

 

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