Strong performance in both domestic and European steel business and positive outlook bode well for near-term earnings. Focus also on executing organic and inorganic expansion. Debt eased on q-o-q basis in Mar-18 but will rise, given the expansion plans.
Consolidated reported Ebitda at `65 bn, down 7% y-o-y, above our and consensus estimates The positive surprise was better than expected profitability in both the domestic and European steel businesses, helped by higher than expected realisation. This was partly offset by higher per ton cost in the domestic business. Consolidated PBT (ex-extraordinary items) of `38 bn was higher than our estimate, helped by Ebitda. Net debt declined from $11.8 bn in Dec-17 to $10.6 bn in Mar-18.
Bhushan Steel (BS) deal on track
BS will issue 794 mn shares to Bamnipal Steel Ltd (BNPL), 100% subsidiary of Tata Steel, such that BNPL will have 72.65% stake in BS (though economic interest will be 100%), the balance being held by financial creditors and other existing shareholders of BS. As a part of the resolution plan, Tata will pay the lenders `352 bn as final settlement towards current outstanding debt of `560 bn pertaining to BS. This includes `351 bn as a one-time settlement and `1 bn for novation of `210 bn debt to BNPL. Tata will fund this through external debt of `161 bn and the balance through internal accruals that will be infused in BS as inter corporate loans. Tata will have the right to convert the inter corporate loans into equity of BS, to the extent of `90 bn.
Revenue of Rs 163 bn was up 4% y-o-y and 7% ahead of our estimate. This reflects 5% y-o-y volume decline, helped by higher realisation — improved by 9% y-o-y and 14% q-o-q. The volume decline reflects operating issue at new steel facility—this has been resolved, according to Tata, and the facility is operating at full utilisation. Realisation improvement reflects impact of improved product mix and higher revenues from sale of other products — adjusted for this, price hike was 11% sequentially and 3% higher than our estimate. On a reported basis, cost per ton was up 7% y-o-y and 14% sequentially. This includes one-time impact of employee wage hike-related cost and one-off other expenses.
Reported Ebitda at `48 bn increased 10% y-o-y and was 2% above our estimate. Blended Ebitda per ton at `15,872 (by our calculation, including impact of FAMD) improved 16% y-o-y. As per management, realisations will improve sequentially in QE Jun-18.
Tata Steel Europe (TSE) reported Ebitda of £125 mn in Q4FY18 vs. £238 mn in Q4FY17, but this was 15% ahead of our estimate. Volumes declined y-o-y but were up 5% q-o-q. Blended European realisations improved 7% y-o-y. This was partly offset by cost/ton of £642 in Q4FY18 vs. £561 in Q4FY17. Management expects Q1FY19 to be better, helped by strength in steel prices and spreads and impact of repricing of contract-based supplies. TSE reported Ebitda per ton of £49 vs. £83 in Q4FY17 and £28 in Q3FY18.