Tata Steel shares rise 2% despite 92% fall in Q1 profit; here’s why

Shares of Tata Steel climbed over 2% on Tuesday, in an otherwise subdued broader market, even after the steel major reported a sharp decline in its net profit in the first quarter of 2023-24. Despite the slump in Q1 profit, the earnings were largely in line with analysts’ estimates, which lifted sentiments.

Following Q1 results, Tata Steel shares opened lower at ₹114.75 against the previous closing price of ₹115.45 on the BSE. In the opening trade, the Tata Group stock declined as much as 1% to ₹114.35, but it soon pared losses and rose 2.55% to hit an intraday high of ₹118.40. The stock has risen 3.5% from the day’s low with 17.7 lakh shares changing hands over the counter in the first three hours of trade so far. The market capitalisation stood at ₹1.44 lakh crore.

Tata Steel shares touched a 52-week high of ₹124.30 on January 19, 2023, and a 52-week low of ₹93.36 on July 25, 2022. The steel major has delivered a positive return of 23% to its shareholders in the past year, despite weak performance in the last six months. In the calendar year 2023, the steel heavyweight has fallen nearly 1%, while it shed over 2% in six months. In the last month, the counter gained nearly 8%, while it added 1.5% in a week.

For the April-June quarter of FY24, Tata Steel reported a consolidated net profit of ₹525 crore, down 93% from ₹7,714 crore in the same quarter a year ago. In the March 2023 quarter, the company's net profit stood at Rs ₹1,566 crore. The profit was impacted by a weak performance by its Europe operations as well as non-cash deferred tax charges on account of buy-in transactions at the British Steel Pension Scheme.

In the United Kingdom, the buy-in transaction for the residual liabilities of the British Steel Pension Scheme has been completed, successfully derisking Tata Steel UK, the company says in the exchange filing.

The consolidated revenue from operations dropped 6.3% to ₹59,490 crore compared with ₹63,430 crore in the year-ago period, dented by lower volumes, partly offset by higher realisations across geographies. Sequentially, the revenue was down around 5.5% from ₹62,961 crore posted in Q4 FY23.

However, Tata Steel's profit, as well as revenue, was better than the D-street's expectations of ₹123 crore and ₹56,338 crore, respectively.

On the operating front, Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) stood at ₹6,122 crore, which was much lower than ₹15,047 crore reported in Q1 FY23. In the March 2023 quarter, it was at ₹7,225 crore.

As per the company, revenue from Indian business stood at ₹34,901 crore, which contributed to nearly 59% of the total revenue of the company. The EBITDA was ₹7,514 crore in Q1 FY24, which translates into EBITDA per tonne of ₹15,651 and EBITDA margin of 22%. The domestic crude steel production was around 5 million tonnes, up 2% YoY primarily driven by ramp-up at Neelachal Ispat Nigam Limited. The deliveries stood at 4.8 million tonnes, up 18% on a YoY basis, driven by a rise in domestic deliveries.

“During the quarter, the global economic recovery continued to face headwinds affecting commodity prices including steel. In India, domestic steel demand continued to grow and was up around 10% on a YoY basis but steel spot prices moderated in line with global cues,” says T V Narendran, Chief Executive Officer & Managing Director.

The revenue from Europe business was £2,083 million and the EBITDA loss stood at £153 million. “The planned relining of BF6 at Tata Steel Netherlands commenced in April and this has led to a drop in crude steel production,” it said.

The company said that its net debt stands at ₹71,397 crore, while the group liquidity remains strong at ₹30,569 crore.

“Volatility in steel markets have impacted working capital and cash flows but we continue to commit to growth in India and spent Rs 4,089 crores on capital expenditure during the quarter. This has led to a Net debt of Rs 71,397 crores. Group liquidity position remains strong at Rs 30,569 crores, which includes Rs 19,043 crores of cash and cash equivalents,” says Koushik Chatterjee, Executive Director and Chief Financial Officer.

“We remain focused on cost optimisation, operational improvements, and working capital management to maximise cashflows. Sustainability is at the core of our strategy which includes providing comprehensive disclosures,” he adds.

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