Is the worst over for Tata Steel post Rs 4,609 crore loss in Q1?

Brokerages retained their bullish view on Tata Steel even as the company posted a consolidated net loss of Rs 4,609 crore for the quarter ended June against a profit of Rs 695 crore in the same period last year.

Some analysts believe that the worst is over for the company after greater-than-expected loss for the quarter.

In its quarterly results, Tata Steel highlighted that it has managed to generate free cash flow of Rs 700 crore post capex in a challenging quarter. The metal major also generated a 14 per cent EBIDTA margin at standalone level and a positive EBIDTA at consolidated level.

Consolidated adjusted EBITDA of the company declined 81.22 per cent YoY to Rs 1,038 crore.

While maintaining a ‘Buy’ call on Tata Steel with a price target of Rs 594, ICICIdirect said, “Q1FY21 was exceptional and Tata fared poorly vis-à-vis peers in its cost-control efforts and faced the highest adverse impact of mix deterioration due to high dependence on autos. Tata Steel Europe remains as unpredictable as ever, yet tailwinds exist in the form of impending price hikes in the region.”

The brokerage further added that the growth capex has been curtailed. Reviving domestic prices, improved mix, resilient iron ore prices and sanguine balance sheet, as well as management, can help Tata meaningfully outperform peers.

The scrip traded 2.32 per cent higher at Rs 422.85 on BSE in afternoon session.

With the improvement in the domestic market, Tata Steel has also been reducing its exports ratio.

The price outlook in both export and domestic markets continues to improve on a month-on-month basis and the current quarter demand has been much better than a typically slow monsoon quarter in the past, Tata Steel said in a filing.

In India, average steel realisations were lower due to the Covid-19 impact during the quarter and about Rs 2,000 crore of costs were under-absorbed due to the lower volumes and have been charged to the profit and loss account, the statement said.

Despite the drop in margins, there was a reduction in net debt of Rs 1,677 crore in India, including a reduction of Rs 577 crore and Rs 291 crore at Tata Steel BSL and Tata Steel Long Products, respectively.

Jyoti Roy, DVP-Equity Strategist, Angel Broking said, “The company reported a greater than expected loss for the quarter. It seems that the worst is over for the company as global steel demand is expected to improve gradually from here on as economic activity recovers with relaxation in mobility restrictions and policy stimulus.”