Tata Steel (Q1 FY13)

India Infoline News Service | Mumbai |

Consolidated Q1 FY13 revenue remained flat qoq at Rs338bn higher than our estimate of Rs330bn; led by higher realisations in its European operations

CMP Rs396, Target Rs470, Upside 18.7%

Consolidated Q1 FY13 revenue remained flat qoq at Rs338bn higher than our estimate of Rs330bn; led by higher realisations in its European operations
Standalone revenue of Rs89bn is inline with our estimate as the impact of lower volumes was offset by higher than expected realizations.
Standalone operating profit was lower than our expectation due to inventory buildup and higher raw material costs
Adjusted EBIDTA/ton at Corus increased from US$8 in Q4 FY12 to US$35 on account of lower raw material costs and strong realisations
South East Asia operations declined marginally, EBIDTA/ton declined from US$29/ton in Q4 FY12 to US$24/ton
Maintain BUY with a revised 9-month price target of Rs470

Result table (Consolidated)
(Rs mn) Q1 FY13  Q4 FY12 % qoq Q1 FY12 % yoy
Net sales 338,212 339,986 (0.5) 330,002 2.5
Material costs (150,498) (165,645) (9.1) (148,944) 1.0
Power and fuel costs (13,906) (12,743) 9.1 (12,093) 15.0
Personnel costs (47,825) (47,221) 1.3 (42,316) 13.0
Other overheads (91,951) (82,588) 11.3 (82,421) 11.6
Operating profit 34,033 31,788 7.1 44,229 (23.1)
OPM (%) 10.1 9.3 71 bps 13.4 (334) bps
Depreciation (13,080) (10,931) 19.7 (11,508) 13.7
Interest (9,690) (11,280) (14.1) (7,377) 31.4
Other income 2,894 2,220 30.3 38,823 (92.5)
PBT 14,157 11,798 20.0 64,167 (77.9)
Tax (8,986) (9,766) (8.0) (11,230) (20.0)
Effective tax rate (%) 63.5 82.8
17.5
Other prov / minority etc 808 2,303 (64.9) 529 52.9
Adjusted PAT 5,979 4,335 37.9 53,466 (88.8)
Adj. PAT margin (%) 1.8 1.3 49 bps 16.2 (1,443) bps
Reported PAT 5,979 4,335 37.9 53,466 (88.8)
Ann. EPS (Rs) 24.6 17.8 37.9 223.1 (89.0)
Source: Company, India Infoline Research

Higher realisations in Europe led to an outperformance in topline
During Q1 FY13, Tata Steel’s topline remained flat qoq in rupee terms to Rs338bn, higher than our estimate of Rs330bn. Higher realisations in the European operations led to the outperformance in topline. Standalone Indian operations reported a decline of 10.1% qoq and 0.6% yoy in sales volume to 1.59mn tons. The company witnessed an increase in steel finished inventory as domestic demand remained subdued. Sales volume at its European operations decreased by 9.6% qoq and 8.3% on a yoy basis to 3.21mn tons, inline with our estimate. Volumes at its South Asian units remained flat qoq to 0.72mn tons. Average blended realizations in India increased 4.5% qoq in rupee terms against our expectation of 2.3%. Realisations in Europe too increased by 3.6% qoq from US$1,103/ton in Q4 FY12 to US$1,143/ton in Q1 FY13. This was quite higher than our expectation as spot realizations in Europe had declined during the quarter. Realizations at its South East Asia declined 2.3% qoq to US$842/ton.

Standalone PAT lower than expectations due to higher tax and increase in RM costs
Tata Steel India registered a decline of 7.1% qoq in operating profit to Rs27.8bn, lower than our estimate of Rs29.5bn. The underperformance in operating profit was due to lower sales volume, higher other expenditure and a jump in raw material costs. OPM during the quarter declined by 35bps qoq to 31.2%. Raw material costs per ton of steel increased 17.3% qoq to Rs11,881 due to the impact of a depreciating rupee on coking coal imports. Power and fuel costs per ton of steel jumped 32.3% qoq to Rs3,445/ton in Q1 FY13. Employee costs decreased 8.2% qoq as previous quarter contained some one time employee provisioning. EBIDTA/ton for the standalone entity declined qoq to Rs18,454 in Q1 FY13.

Blended per ton cost analysis (Standalone)
  Q1 FY13 Q4 FY12 % qoq Q1 FY12 % yoy
Steel production 1.75 1.78 (1.5) 1.74 0.6
Steel sales 1.59 1.77 (10.1) 1.59 -
Sales as a % of production 90.9 99.5
91.4
Net realisations 56,025 53,617 4.5 49,436 13.3
Cost per ton (Rs/ton)




Inventory change (253) (1,441) (82.4) 279 -
RM/ton 11,881 10,126 17.3 9,316 27.5
Staff cost 5,403 5,296 2.0 4,321 25.1
Power and fuel costs 3,445 2,603 32.3 2,889 19.3
Other expenditure 17,096 15,229 12.3 12,817 33.4
Total cost 37,572 31,813 18.1 29,621 26.8
EBIDTA/ton 18,454 21,804 (15.4) 19,814 (6.9)
Source: Company, India Infoline Research

Consolidated operating profit declined 23% yoy
Tata Steel on a consolidated level, registered an operating profit of Rs34bn (US$644mn) compared to Rs31.8bn (US$672mn) in Q4 FY12. This was marginally above our estimate of Rs33bn, as the impact of lower operating profit in the standalone entity was offset by stronger numbers in Tata Steel Europe. During the quarter, European operations registered an adjusted operating profit of US$11mn against an adjusted operating profit of US$29mn in Q4 FY12. EBIDTA/ton for European operations stood at US$35/ton, higher than the US$8 achieved in Q4 FY12. The increase in margins was higher than our expectations due to an increase of US$40/ton in realizations. South East operations managed to register an operating profit of US$17mn, lower on a qoq basis, as realizations declined during the quarter.

Cost Analysis
As a % of net sales Q1 FY13 Q4 FY12 bps qoq Q1 FY12 bps yoy
Material costs 44.5 48.7 (422) 45.1 (64)
Power and fuel costs 4.1 3.7 36 3.7
BSE 694.95 9.10 (1.33%)
NSE 694.70 8.95 (1.31%)

***Note: This is a NSE Chart

 

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