Tata Steel stock tumbles 5% after weak Q4 earnings; should you buy, sell, or hold?

Shares of Tata Steel slumped nearly 5% in today's trade to reach ₹165.50 apiece, a day after the company reported Q4 and FY24 numbers. On Wednesday, post market hours, the company reported a 64.59% decline for its Q4 FY24 consolidated net profit to ₹554.56 crore, led by lower steel realisations across geographies.

Total revenue from operations fell to 58,687 crore from ₹63,131.08 crore in the same quarter of last year, owing to a nearly 4% drop in its mainstay India business, which contributed at least 62% of the overall revenue. The revenue from India's business dropped to ₹36,635 crore from ₹38,048 crore in Q4 FY23. 

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Revenue from the Netherlands also dropped to ₹13,908 crore from ₹15,444 crore a year ago, while revenue from the UK also slipped to ₹6,800 crore from ₹7,457 crore in Q4 FY23. 

For the full fiscal year, the company's revenue dipped to ₹2,29,171 crore from ₹2,43,353 crore in FY23, while it posted a net loss of ₹4,910 crore in FY24 as compared to a net profit of ₹8,075 crore in FY23. 

In its investor presentation, the company highlighted the moderation in global steel prices during the January–March 2024 period across key regions. It said that the US steel prices witnessed a decline of approximately 25%, while prices in the EU and China were down by 6–8%. 

Despite this, China's steel supply continued to surpass demand, resulting in heightened exports. Although the price arbitrage between the EU, US, and China narrowed, subdued demand remained a concern.

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In FY2024, Tata Steel India recorded 6% year-on-year growth in deliveries, reaching around 19.9 million tons. Indian deliveries now constitute 68% of the total deliveries, with the company expecting further growth driven by incremental volumes from the 5-MTPA capacity expansion at Kalinganagar. 

The company noted that India's apparent steel demand continued to rise, supported by government spending and consumption. Segments such as auto, infrastructure and construction, and capital goods showed improvement during the quarter.

In Europe, the EU manufacturing PMI remained subdued, ranging between 45 and 47 levels from January to March 2024. Elevated inflation and geopolitical tensions continued to exert pressure on steel end-use sectors, according to the company's assessment.

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Meanwhile, the board of the company has recommended a dividend of ₹3.60 per equity share of face value Re 1 each for FY24 and also approved the issuance of additional debt securities, in one or more tranches, to raise up to ₹3,000 crore via non-convertible debentures (NCDs) on a private placement basis.

Brokerage views

Global brokerage firm Jefferies has a 'buy' rating on Tata Steel with a target of ₹200. In Q4, EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) saw a 5% quarter-on-quarter rise, despite a 9% year-on-year decline, and surpassed estimates by 7%. 

However, it said the standalone EBITDA/t fell by 12% quarter-on-quarter, influenced by a lower ASP. The EBITDA/t loss significantly reduced from $191 in Q3 to $40 in Q4. Moreover, Q4 net debt remained relatively flat, quarter-on-quarter. 

The company plans to inject $2.1 billion into its overseas holding company to repay existing debts at offshore entities and support restructuring costs in the UK.

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On the other hand, Morgan Stanley has an ‘equal-weight’ rating on Tata Steel with a target of ₹135. 

"The beat on consolidated EBITDA was driven by a better-than-expected performance in both domestic and overseas business segments. Tata Steel's Kalinganagar Phase 2 expansion in the domestic sector remains on track. However, in the UK, existing heavy assets are nearing closure," said the brokerage. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.