Tata Steel share price jumps 1% on strong Europe EBITDA in Q1FY23; should you buy, hold, sell?

Tata Steel share price gained more than 1 per cent to Rs 974 apiece on BSE on Tuesday, as the company’s consolidated EBITDA surprised on the back of strong Tata Steel Europe (TSE) EBITDA

Tata Steel share price jumps 1% on strong Europe EBITDA in Q1FY23; should you buy, hold, sell?
The brokerage firm also added that for the first time in the history since being acquired, Tata Steel Europe reported higher EBITDA/t. Image: Pixabay

Tata Steel share price gained more than 1 per cent to Rs 974 apiece on BSE on Tuesday, as the company’s consolidated EBITDA surprised on the back of strong Tata Steel Europe (TSE) EBITDA. Tata Steel’s European business delivered a sharp improvement in performance as long-term contracts and product mix helped drive a strong increase in realisations. At least two brokerage firms have reduced ratings on the stock, as Tata Steel reported a 21.03 per cent on-year fall in consolidated net profit at Rs 7,714 crore in the first quarter despite beating earnings street estimates.

On a year to date basis, Tata Steel share price has tanked 15.2 per cent, and 11 per cent in the last six months. The stock has plummeted more than 25 per cent in the last one year. Tata Steel had posted a net profit of Rs 9,768.34 crore for the same period a year ago. The company’s total revenue from operations rose 18.64% to Rs 63,430.07 crore from Rs 53,465.43 crore during the year-ago period. Consolidated Ebitda stood at Rs 15,047 crore. 

ICICI Securities

Reduce | Target Price: Rs 827 | Fall: 15%

Analysts maintained ‘reduce’ rating with an unchanged target price of Rs 827 per share as they wait for the EBITDA contraction cycle to play out. “We expect the downcycle to last 4-5 quarters with peak being attained in Q2FY22,” they said. They added that Tata Steel remains focused on product mix with automotive, engineering, packaging, and construction being the key focus areas. “Supply-chain disruptions, primarily due to the Russia-Ukraine crisis and elevated inflation, have led to moderation in steel demand,” they noted.

Prabhudas Lilladher

Negative stance on the sector

Analysts at Prabhudas Lilladher have a negative stance on the sector due to weak outlook on steel prices and concerns on global demand. They said that Q1 earnings have come above their estimates but it is driven by a fall in steel prices with a lag. Prabhudas Lilladher said that Tata Steel reported a strong set of Q1FY23 earnings. The beat was largely due to stronger than expected realisations in India operations and elevated margins in Tata steel Europe (TSE).

Motilal Oswal Financial Service

Neutral | Target Price: Rs 975

Analysts said that Tata Steel Europe (TSE) reported a record EBITDA of USD374/t (up 294% on-year, 39% QoQ) propelled by strong tailwind of contractual prices. :We believe the next round of contract renewals will happen at significantly lower prices as European HRC prices are down by almost 38% now v/s Apr’22 average,” they added. The brokerage firm also added that for the first time in the history since being acquired, Tata Steel Europe reported higher EBITDA/t. The research firm noted that the two important things that one needs to understand are what is the sustainable level of EBITDA/t at TSE; and will TSE take recourse to the parent’s balance sheet in transitioning to green steel? “These should ideally define the valuation and stock trajectory in our view, as steel prices have now dropped and it is a matter of time when TSE reports a declining trend in EBITDA as well,” it said.

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