Tata Steel soars 5%, hits new record high post June quarter results

Shares of Tata Steel hit a new record high of Rs 1,532 as they rallied 5 per cent on the BSE in intra-day trade on Tuesday after the company reported a consolidated net profit of Rs 8,907 crore in the June quarter (Q1FY22) as against a loss of Rs 4,416 crore in the corresponding period last year on the back of increased revenue and low base on account of Covid-19’s first wave last year.

The stock of the Tata Group company was quoting higher for the fourth trading straight day, having surged 12 per cent during the same period. In the past six months, it has zoomed 120 per cent, as compared to a 6.8 per cent rise in the S&P BSE Sensex.

Led by strong steel prices, total revenue from operations in the period under review stood at Rs 53,372 crore, up 108 per cent from the same period last year, as both India and Europe operations contributed sizeably.

Steel deliveries at Tata Steel Europe increased by 17.4 per cent year-on-year (YoY) to 2.33 million tonnes (MT) in Q1 FY22, while India deliveries were up 41.6 per cent YoY to 4.15 MT. Sequentially, both regions saw a decline in steel deliveries due to partial lockdowns and temporary shutdowns in few steel consuming sectors in India (second covid-19 wave), and lower flex sales in Europe.

Tata Steel’s reported highest ever quarterly consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) of Rs 16,815 crore, up 13.3 per cent quarter-on-quarter (QoQ) and 25.7x YoY with improved realization across key entities.

The company’s gross debt declined to Rs 84,237 crore with debt repayment of Rs 5,894 crore. Net debt declined by Rs 1,416 crore QoQ and was at Rs 73,973 crore at the end of June 2021. Net debt to EBITDA improved to 1.59x while net debt to equity improved to 0.91x. The company is committed to deleveraging further and expects to bring down the debt significantly by the end of the current financial year.

The management said despite the increase in working capital due to higher prices of both steel and raw material, the company generated consolidated free cash flow of over Rs 3,500 crore during this quarter and made debt repayments of Rs 5,894 crore. “We are committed to deleverage further and expect to bring down the debt significantly by the end of the current financial year. We continue to prioritize capex spend on ongoing projects and strategically essential investments”, the management said.

With captive iron ore availability, Tata Steel’s Indian operations are a play on steel prices. "Given the prevailing high prices, we expect margin to remain strong. While Tata Steel Europe’s EBITDA should be strong in FY22, sustenance would be key to meeting its cash outflow requirements (capex, debt, and interest). The deleveraging should remain strong, despite the resumption of growth capex," the brokerage firm Motilal Oswal Securities said in a note.