Tata Steel Q1FY13: Mixed Bag
- Indian operations: High cost negates realisation gains The sales volume of 1.59mt (flat y-o-y) was broadly in line while blended realisations were above estimates, rising by 4.6% q-o-q. However, standalone EBITDA at Rs27.8bn was well below the estimate of Rs29.6bn due to high cost of power and external coke purchases. The company bought ~Rs4bn (incremental) of external coke owing to partial shutdown of the existing coke oven batteries even as new batteries in the recently commissioned 2.9mtpa facility are yet to be commissioned. The sequential increase of 19% in power cost was led by an increase in tariff.
- International operations lead to PAT outperformance: Consolidated PAT at Rs5.9bn was above the estimate of Rs3.2bn due to a better than expected performance in TSE (Tata Steel Europe) wherein realisations increased 8% q-o-q, leading to an EBITDA/t of $36 vs an estimate of $14. TSE sales volume (at 3.2mt) dipped 9.5% y-o-y, but was in line with estimates.
Outlook and valuations: The management maintains that H2FY13 will see an improved performance in India with issues related to coke purchases, power costs and volume growth seeing a reversal from Q3FY13 onwards. It also expects an uptick in TSE volume in H2FY13 even as the FY14E EBITDA estimate for TSE is conservative at $172mn against $114mn reported in Q1FY13. The consolidated net debt is likely to remain at the current levels. Maintain buy
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