Tata Steel Q1 results update!

• Results below estimates: Tata Steel has reported a consolidated loss of Rs 4,648.13 crore in Q1FY21, as compared to a profit of ₹714.03 crore in the same period previous fiscal. Analysts had earlier estimated a loss of about ₹2,300 crore. While the company has reported a profit of a profit of ₹1,193.27 crore for Q1 FY21 on a standalone basis, heavy losses in Europe operations impacted the consolidated earnings. 
• Margins plunge: The company’s operating profit fell 81.2% on-year to hit a 18-quarter low of Rs 1,082 crore. The Margin has also reduced to 2.1% from 14.9% earlier.  The EBITDA was hit due to disruptions in the Europe operations. “Tata Steel Europe performance was affected by lower deliveries and sharp decline in European spreads to an unsustainably low level.” As a result, Tata Steel’s adj. EBITDA dropped to Rs.1,038 crores.
• Covid-19 impact: The panddmic has adversely impacted the group’s sales volume, mix and realisations in the various geographies it operates. Given the uncertain business environment, Tata Steel said that capex is being curtailed sharply and restricted to safety and sustenance projects. India average steel realizations were lower due to the COVID impact during the quarter.

Steel manufacturing firms have been one of the worst-hit sectors due to the ongoing pandemic. According to estimates by India Ratings, the nation’s steel demand in FY2020-21 is slated to fall by about 15%. This will lead to oversupply, suppressed prices and rising inventories once the lockdown is lifted. However, Tata Steel, being the largest steel producer, is well-poised to handle the ongoing crisis.

The company has built up a liquidity buffer of Rs.20,144 crores including Rs.14,178 crores of cash & cash equivalents to help it tide through the current crisis. The India business is on-track to recovery, and the company has ramped-up its capacity utilizations to 90% levels with total sales in June exceeding FY20 average monthly sales. However, in Europe, spreads are at unsustainably low levels. Tata Steel said that it is engaged with respective governments in UK and Netherlands for their support. 

Consensus recommendation: Buy (Based on views of 26 analysts from external institutions)