Shares of Tata Steel Ltd. declined after analysts raised concerns about its European operation even as its fourth-quarter profit fell nearly 83%.
The Indian steel major's fourth-quarter revenue and net profit declined during the quarter ended March 2023, as a fall in European realisations partly offset the rise in India. The company, however, managed to beat estimates for all metrics by a wide margin.
Tata Steel's consolidated net profit fell 82.53% year-on-year to Rs 1,704.86 crore, according to its exchange filing, but beat the Bloomberg estimate of Rs 330.37 crore.
European business continues to struggle and was a big drag, according to Morgan Stanley, while JP Morgan saw strong India operations offset by weak Europe.
Tata Steel Q4 FY23 (Consolidated, YoY)
Revenue down 9.18% at Rs 62,961.5 crore (Bloomberg estimate: Rs 60.827.2 crore).
Ebitda down 51.97% at Rs 7,219.2 crore (Bloomberg estimate: Rs 5,711.3 crore).
Ebitda margin at 11.47% vs. 21.68% (Bloomberg estimate: 9.4%)
Net profit down 82.53% at Rs 1,704.9 crore (Bloomberg estimate: Rs 330.4 crore).
The company declared a net profit of Rs 3.60 apiece for fiscal 2023. Shareholders will vote on the same on July 5, 2023, and if approved, the dividend will be paid on and from July 10, 2023.
Shares of the company declined 0.54% to close at Rs 109.70 as compared with a 0.32% decline in the benchmark Nifty 50.
Of the 27 analysts tracking the stock, 14 maintain a 'buy,' five suggest a 'hold,' and one analyst recommends a 'sell', according to Cogencis data.
Here's what analysts say about the results:
Morgan Stanley
Maintains 'equal weight' on the stock with a price target of Rs 110 per share.
Q4FY23 standalone Ebitda was Rs 81.3 billion, 25% ahead of house estimates.
A strong beat was led by better performance on both realisations and opex.
Consolidated Ebitda was Rs 72.2 billion, 26% ahead of house and consensus estimates.
European business continues to struggle and was a big drag.
Risks to upside:
-Improvement in Indian steel demand growth and recovery in steel prices.
-Faster-than-expected improvement in the global macroeconomic environment, thereby driving improvement in European business.
Risks to downside:
-Sharp correction in international steel prices.
-Deeper-than-expected losses in Europe.
JP Morgan
Remains 'overweight' with a price target of Rs 150.
The company offers the most attractive medium-term volume growth story.
FY25–26 volumes could be about 30% higher compared to FY22.
Valuation multiples remain depressed as investor concerns centre around potential capex in the U.K.
Sees an exit from the U.K. or Europe as a near-zero-probability event.
Do not see a re-rating story for the company.
Believes that organic volume, even at mid-cycle margins, offers an attractive earnings story.
expects a positive stock price reaction to the Q4 results.
Expects consensus earnings to see upward revisions.
Strong India operations offset weak Europe and drive large beat, debt reduction positive.
Domestic HRC (hot-rolled coil) prices could trend lower in the next two to three months.
Margin trends remain broadly stable despite the sharp fall in coking coal prices.
Key investor concern is whether the company will incur large capex in its European operations for decarbonization.
Axis Capital
Kept 'reduce' call with a target price of Rs 112, implying a potential upside of 2%.
Ebitda beat the house estimate by 28% on lower costs.
Realisation rose 4% QoQ to Rs 68,826 per tonne, in line with estimates due to better steel prices.
A combination of lower costs and higher realisation drove unitary Ebitda up by 61% quarter-on-quarter to Rs 16,703 per tonne.
Volume rose 8% QoQ to 4.98 mt as weaker exports were offset by strong domestic volumes.
Tata Steel Europe witnessed another weak quarter with Ebitda loss due to lower realisation.
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