Tata Steel Q3 preview: PAT likely to decline by double digits YoY, EBITDA loss in European operations

 

Overall, Tata Steel may report a decline in parameters such as revenue, EBITDA and profit after tax (PAT) during the third quarter. Steel sales volumes could perform on a mixed note.

Tata Steel, one of India's leading steel manufacturing companies, is likely to witness another weak quarter for the period ending December 31, 2022 (Q3FY23). The Tata Group-backed steel maker's net profit may decline by more than half on a quarter-on-quarter basis. The year-on-year decline is likely to be huge. Its European operations are also being watched after reporting EBITDA losses.

Overall, Tata Steel may report a decline in parameters such as revenue, EBITDA and profit after tax (PAT) during the third quarter. Steel sales volumes could perform on a mixed note.

Tata Steel will present its December 2022 quarter earnings on 6 February.

Ahead of its earnings, Tata Steel shares closed at ₹120.10, broadly lower than the previous close on the BSE. Its market cap is around ₹ 1.47 lakh crore.

In the second quarter of FY23, Tata Steel reported a PAT of ₹1,514 crore, down 87% from ₹11,918 crore in Q2FY22, owing to higher costs and weak operating performance amid the global economic slowdown. However, revenue from operations declined by 0.8% in Q2FY23 at a slower rate to ₹59,877.52 crore as compared to ₹60,387.13 crore in the second quarter of the previous fiscal. EBITDA declined by 62% to ₹6,060.4 crore.

What to expect in Q3?

In its Q3 preview report for the metals sector, ICICI Direct said, "We expect Tata Steel's standalone operating EBITDA/tonne of ₹12,500/tonne as compared to ₹10,177/tonne in Q2FY23 and ₹28,631/tonne in Q3FY22 Will report."

For the third quarter, the brokerage expects Tata Steel's standalone operations to report steel sales volumes of ~4.5 million tonnes (MT), up 5% YoY but down 6% QoQ while European operations steel sales volumes of ~1.96 MT is expected to come, down 9% YoY but up 5% QoQ.

Further, the brokerage believes that the European operations of the company to report loss at the EBITDA level. Additionally, European operations are expected to report negative EBITDA/tonne of $75/tonne.

On a consolidated basis, ICICI Direct's preview note said, "Topline is expected to decline 13% YoY, 12% QoQ to ₹52,618 crore. Tata Steel's consolidated EBITDA for Q3FY23E down 73% YoY and 29% QoQ is expected to be ₹4,279.crore. Consolidated EBITDA margin for Q3FY23E is expected to come in at 8.1% as compared to 26.1% in Q3FY22 and 10.1% in Q2FY23. Consolidated PAT is expected to come in at ₹564 crore, which is 94 % YoY, down 56% QoQ.

Meanwhile, on Tata Steel, Kotak Institutional Equities said in its Q3 note, "We estimate steel realizations to decline by 2% qoq (-6% yoy) during the quarter due to price cuts and contract resets." We expect standalone volumes to grow by 1% YoY (+xx% qoq) at 4.45 million tonnes on a lower base. India EBITDA/tonne to recover 41% qoq to Rs12,566/tonne (- 61% yoy) partially offset by lower receipts due to lower coal cost for