The year 2024 has started on a dismal note for investors of Tata Steel, whose stock has already fallen by 4% so far.
The year 2024 has started on a dismal note for investors of Tata Steel, whose stock has already fallen by 4% so far.
The December quarter (Q3FY24) results show Tata Steel’s European operations continue to make losses. In Q3, loss at the Ebitda level rose to about ₹2,872 crore, the highest in the past five quarters, at least.
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The December quarter (Q3FY24) results show Tata Steel’s European operations continue to make losses. In Q3, loss at the Ebitda level rose to about ₹2,872 crore, the highest in the past five quarters, at least.
Besides subdued demand, production shortfalls in the Netherlands and the UK had a bearing on Q3 earnings. Ebitda is earnings before interest, tax, depreciation, and amortization.
The European business is likely to report losses in Q4 as well.
While the UK business is expected to see a sequential increase in net realization, the Netherlands would see a drop.
Moreover, both the operations are likely to see a sequential increase in the cost of coking coal, a key raw material.
The bright spot is that Tata Steel expects the Netherlands facility to turn Ebitda positive in FY25, as another blast furnace would start operations by January-end.
Further, the loss in the UK operations is expected to reduce significantly aided by restructuring activities.
“Though Europe losses shall reduce, they shall barely break even on Ebitda in FY25,” said a Nuvama Institutional Equities report dated 25 January.
Meanwhile, Tata Steel’s Indian operations are comparatively in a better place.
In Q3, standalone Ebitda stood at ₹8,250 crore, up 20% sequentially, aided by better volume and realization. But in Q4, the Mumbai-based steel maker expects net realization, which was ₹71,069 a tonne in the December quarter, to fall sequentially by ₹1,000 per tonne.
Adding to the woes is the cost of coking coal, which is likely to be $10 per tonne higher sequentially.
This follows a $4-per-tonne sequential increase seen in Q3. But the silver lining is that this cost increase is lower than the industrys’ as Tata Steel uses blended coal.
To be sure, global steel prices continue to be subdued amid higher Chinese exports. Note that China is a crucial market for metals. As such, for shares of Tata Steel to see a meaningful rally, steel prices need to pick up pace, which hinges on an uptick in global demand.
Another trigger is the narrowing losses in the Europe operations.
“Despite being positive on structural improvement in Tata Steel UK, we would keep a close tab on the cash outgo towards restructuring and redundancies,” said analysts at ICICI Securities in a report on 26 January.