15 August 2020
1QFY21 Results Update | Sector: Metals
Tata Steel
Neutral
Estimate change
TP change
Rating change
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CMP: INR418
Margin improving in Indian operations
TP: INR433 (+3%)
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
TATA IN
1,145
475.8 / 6.3
506 / 251
19/5/13
5863
But Europe to continue to post losses
Tata Steel’s (TATA) 1QFY21 consolidated EBITDA at INR5b (-91% YoY) was
the weakest in the past 10 years. The COVID-19 crisis led to a sharp
decline in both volumes and margins across all entities.
Margin outlook in Indian operations, however, is much better with prices
bouncing back to near pre-COVID levels. Europe, though, should remain a
drag with EBITDA losses expected to continue in the near term.
We have raised FY21/FY22E EBITDA estimates by 16%/7% to factor in the
improved outlook in Indian operations. However, leverage remains
unfavorable at 6.8x FY21 EBITDA. Maintain
Neutral.
Weak results in line with expectation
Consol. reported EBITDA plunged 89% QoQ (-91% YoY) to INR5.1b (v/s est.
INR10.3b) in 1QFY21, led by significantly lower profitability in Tata Steel’s
India operations and losses in Europe. Adjusted EBITDA (eliminating impact of
forex movement on investments) was also weak at INR10.4b (-81% YoY).
Consol. sales volumes declined 24% QoQ to 4.86mt. Consol. PAT loss stood at
INR44.3b v/s Adj. profit of INR13.8b in 4QFY20.
Standalone:
EBITDA declined 66% QoQ to INR12.5b (v/s est. INR11.6b),
primarily due to 28% QoQ decline in volumes at 2.11mt and 9% QoQ
decline in realization to INR44,344/t (on account of weak pricing, adverse
product mix and higher exports at ~50% of volumes). Lower volumes
resulted in higher fixed cost/t (~INR3,600/t as per management). As a
result, EBITDA/t declined 53% QoQ to INR5,940/t (v/s est. INR5,529/t).
Adj. PAT loss stood at INR3.9b (v/s Adj PAT of INR13.2b in 4QFY20).
Tata Steel Europe (TSE):
Tata Steel Europe reported EBITDA loss of
INR6.3b (v/s profit of INR650m in 4QFY20), despite profit of INR7.6b from
sale of carbon credits and receipt of INR4.4b government support.
Operational EBITDA loss, thus, was much higher at INR18b. Volumes
declined 19% QoQ to 1.94mt. Per ton EBITDA loss stood at USD44/t (v/s
est. USD50/t and positive USD4/t in 4QFY20).
Tata Steel BSL:
Tata Steel BSL’s EBITDA plunged 81% QoQ to INR 1.5b (v/s
est. INR3.0b) due to lower volumes (0.69mt, -81% QoQ) and realization
(INR38,862/t, -11% QoQ). EBITDA/t declined to INR2,163/t (-73% QoQ).
Net-debt stood flat QoQ at INR1,070b. However, Net-debt to TTM EBITDA
increased to 8.5x (6.1x at end-FY20).
Management commentary highlights
Management has guided for 2QFY21 EBITDA loss in Europe at similar level
as reported in 1QFY21 i.e. USD44/t.
For Indian operations, management has guided for improvement in
realization by >INR3,000/t QoQ (due to better pricing/product mix) and
capacity utilization >95% for 2QFY21.
Financials & Valuations (INR b)
Y/E MARCH
2020E 2021E 2022E
Sales
1,398 1,291 1,481
EBITDA
175
155
238
Adj. PAT
10.4
-9.9
66.6
EBITDA Margin (%)
12.5 12.0 16.1
Cons. Adj. EPS (INR)
9.1
-8.7
58.1
EPS Gr. (%)
-89.8 -195.8 -769.7
BV/Sh. (INR)
587
567
613
Ratios
Net D:E
1.6
1.6
1.5
RoE (%)
1.6
-1.5
9.8
RoCE (%)
5.8
4.0
8.1
Payout (%)
89.3
-93.2
13.9
Valuations
P/E (x)
46.1
-48.2
7.2
P/BV (x)
0.7
0.7
0.7
EV/EBITDA(x)
8.9
9.9
6.3
Div. Yield (%)
2.4
2.4
2.4
FCF Yield (%)
20.4 21.6 23.9
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
34.4
34.4
33.1
30.0
29.9
30.4
11.8
12.4
13.8
23.7
23.3
22.7
FII Includes depository receipts
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.