Tata Steel Limited (NSE:TATASTEEL) (BSE:500470)

Tata Steel Limited is a manufacturer of steel and steel products. The Company’s product includes Hot Rolled Coils, Cold Rolled Coils, Galvanized Coils, and Wire Rods and Rebars. The Company’s Indian operations are mainly carried out from Jamshedpur in Jharkhand with manufacturing divisions in Kharagpur (West Bengal), Joda & Bamnipal (Odisha) and Tarapur (Maharashtra). Mines, Collieries & Quarries are located in the states of Jharkhand, Odisha and Karnataka. The Company’s international subsidiaries have production capacities, located largely in Europe and Asia Pacific. Majority of the steel business activity of Tata Steel Europe is at Port Talbot (the United Kingdom), Scunthorpe (the United Kingdom), Rotherham (the United Kingdom), IJmuiden (Netherlands) while that of NatSteel is in Singapore.

Official website: www.tatasteel.com

Raw Material cost savings offset impact of lower realisation: For 1QFY2016, Tata Steel’s standalone sales volume increased 2% yoy at 2.14MT, while blended realisation declined by 15% to Rs42,434/tonne, resulting in a 13% yoy decline in revenue. Raw material expenses however were below our estimates at Rs2,368cr, on account of lower than estimated consumption of imported iron ore (0.3MT vs our estimate of 0.8MT). Staff costs for the quarter declined by 4.2% yoy to Rs1082cr. Despite an increase in other operating expenses, the fall in raw material expenses and staff costs resulted in the EBITDA margin coming in higher than expected at ~18.6%, (vs our estimate of ~15.9%). Overseas operations remain under pressure: The EBITDA for the quarter was affected by currency losses, led by unfavourable movement of the GBP against the USD and EUR, and pressure from imports. The EBITDA/tonne declined sharply to $26 as against $52 in 1QFY2015 and well below our estimate of $43. The SEA and other subsidiaries however posted a strong increase in EBITDA at Rs510cr as against Rs64cr in 1QFY2015. Outlook and valuation: We downgrade our recommendation on the stock to ‘Neutral’ led by sustained pressure on steel realisations and high leverage levels.

Source: http://www.angelbroking.com/