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Tata Steel’s consolidated Ebitda grew 18% year-on-year (y-o-y) to ₹10,500 crore in the September quarter (Q2FY27), supported by improved realization and higher volumes in the domestic business.
Revenue from the domestic and overseas business increased 11% to ₹65,450 crore even as sales volume was flat at 7.92 million tonnes. European operations reported strong realization growth, but profit declined as lower volumes hurt operating leverage.
With this, H1FY27 revenue and Ebitda growth stand at 13% and 21%, respectively. The second half of FY27 could be better, with the management expecting volumes to pick up and prices to remain at higher levels.
Domestic realizations in Q3 are expected to be about ₹3,500 per tonne higher than ₹70,400 reported in Q2, which was flattish sequentially, but up 14% y-o-y. This would be partly offset by an about $15 per tonne sequential rise in the cost of coking coal. Ongoing annual contract negotiations in Europe, amid the firm pricing environment, should reflect from Q4 or Q1FY28.
Tata Steel’s standalone Ebitda, which includes its domestic operations, grew 23% y-o-y to ₹10,315 crore. The overseas businesses were subdued as lower sales volumes offset the benefit of 33% and 16% y-o-y growth in realizations in the UK and the Netherlands, respectively.
Volumes in the Netherlands contributed 16% of consolidated sales in Q2, but Ebitda dipped 14% y-o-y to ₹790 crore, though much higher than Q1’s ₹39 crore, which was hurt by the shutdown of its direct sheet plant in April following breach of environment norms.
While the plant restarted in August, the Netherlands business continues to face uncertainty over its high emissions. The management expects greater clarity by March on the government's support for decarbonization investments and the business’ long-term viability.
The UK contributes 5% of Tata Steel’s total volumes and remained in losses, albeit lower at ₹719 crore against ₹764 crore a year ago. Volumes were impacted by higher imports and inventory build-up by domestic consumers ahead of the implementation of trade measures from 1 July.
The management expects the inventory overhang to persist till Q4, which could stay longer for some product categories. It is targeting Ebitda breakeven in the UK by Q4, aided by higher prices, a pick-up in volumes and cost savings.
While the near-term earnings prospects look robust, given the firm steel price outlook, volume growth could be a challenge in the medium term.
“With the next 5 mtpa (million tonne per annum) expansion coming up only by FY31, Tata Steel will deliver lacklustre volume growth over FY28-30,” noted Jefferies India.
The brokerage, nevertheless, raised its FY27-29 earnings per share estimates by 2-5% and retained its ‘buy’ rating on the stock.
Tata Steel has increased focus on downstream products from its primary steelmaking capacity. Its downstream expansion projects include a 0.7 mtpa hot rolled pickling and galvanizing line and doubling of tinplate capacity to 0.6 mtpa. The 3.2 mtpa electric arc furnace project in the UK is expected to start in 2029, after delays due to power connection and other infrastructure issues.
Tata Steel shares have fallen almost 18% from its 52-week high of ₹224.4 on 15 May, dragged down by the environmental headwinds in the Netherlands. The stock trades at an enterprise value of 7.4 times its FY27 estimated Ebitda, as perBloomberg. Greater clarity on the future of the Netherlands operations remains crucial for the stock.
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