Tata Steel (TATA) Stock Plummets 5% Post Disappointing Q4 Earnings: 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 realizations 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.

Tata Steel’s Q4 FY24 results reveal a significant decline in profit and revenue, driven by lower steel prices and subdued demand across key markets.

Q4 FY24 Financial Performance

Tata Steel reported a 64.59% decline in its consolidated net profit for Q4 FY24, amounting to ₹554.56 crore. This significant drop was primarily due to lower steel realizations across various geographies. The total revenue from operations also fell to ₹58,687 crore from ₹63,131.08 crore in the same quarter of the previous year. The company’s mainstay India business, which contributes around 62% of the overall revenue, saw a nearly 4% decline in revenue, dropping to ₹36,635 crore from ₹38,048 crore in Q4 FY23.

Global Revenue Decline

Revenue from Tata Steel’s operations in the Netherlands fell to ₹13,908 crore from ₹15,444 crore a year ago, while revenue from the UK 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, and it posted a net loss of ₹4,910 crore in FY24 compared to a net profit of ₹8,075 crore in FY23.

Market Conditions and Strategic Insights

In its investor presentation, Tata Steel highlighted the moderation in global steel prices during the January–March 2024 period across key regions. 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.

Operational Highlights

In FY2024, Tata Steel India recorded a 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.

European Market Challenges

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. Meanwhile, the board of Tata Steel 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.

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.

Conclusion

Tata Steel’s Q4 FY24 results reflect significant challenges due to declining steel prices and subdued demand across key markets. While the company has shown resilience in its Indian operations, global market conditions and geopolitical tensions continue to pose challenges. Investors should consider these factors and consult with financial experts before making any investment decisions.

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Gideon Wolf
Gideon Wolfhttps://en.coinotag.com/
GideonWolff is a 27-year-old technical analyst and journalist with extensive experience in the cryptocurrency industry. With a focus on technical analysis and news reporting, GideonWolff provides valuable insights on market trends and potential opportunities for both investors and those interested in the world of cryptocurrency.
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