Deleveraging (Rs 110 bn in Q4FY21) aided by Rs 32.4 bn of net proceeds from partly paid shares was the crucial highlight of Tata Steel Q4FY21 outcomes. FY21e witnessed ~ Rs 200-bn net debt reduction. Adjusted consolidated Ebitda of Rs 139.3 bn was largely in line, with ~ Rs 3 bn from Tata Steel South East Asia which has been reclassified to “Continuing operations” from “Held for sale”. Standalone Ebitda print shocked at Rs 27,828/te against Rs 26,500/te anticipated, whilst Tata Steel Europe (TSE) reported an in-line $66/te of Ebitda.
Mgmt has maintained its net debt reduction guidance of $1 bn + for FY22e. This seems a bit conservative offered the MTM earnings and in spite of accelerated capex. The extent of deleveraging is generating an upward bias for multiples for the whole sector, offered substantially lowered loss probability. We retain Hold with a revised target of ~Rs 1,020/ share at .9x FY23E P/B – with substantially lowered loss probability, the improve in valuation band is only a matter of time in our view.
Maintain HOLD: Spot Ebitda at Rs 38,000/te remains a crucial concern, specifically when cycle duration has shrunk. Net pre export advances was largely flat q-o-q at Rs 62.3 bn. While capex is anticipated to choose up, we anticipate a doable deleveraging of ~ RS 300 bn+ in FY22e – FY22e can be the defining year exactly where ND/Ebitda approaches 1x ahead of normalising to 2-2.5x. With close to zero loss probability by means of cycle now, one can make an argument for expanding multiples.
Indian operations reported a improved than anticipated print: Tata Steel India standalone adjusted Ebitda came in at Rs 92 bn (+37% q-o-q, +151% y-o-y), ahead of I-Sec estimate of ~Rs 87 bn. Ebitda elevated by ~ Rs 7,800/te q-o-q to attain ~Rs 28,000/te. Q4FY21 delivery volume elevated 16% y-o-y as domestic deliveries elevated 22%y-o-y exports had been at 11% of general deliveries. Auto volumes elevated 13% q-o-q. This, helped realisations. Higher exports and reduced auto volumes will define Q1FY22e, but an Ebitda print of ~ Rs 37-38,000/te is doable. Combined India Ebitda reached Rs 26,309/te against Rs 18.931/te q-o-q.
Key takeaways for TSLP: Steel production grew on the back of debottlenecking at steel melting shop and arcing – enhancing 7% q-o-q and 19% y-o-y in Q4FY21 whilst FY21 production elevated 11%y-o-y. TSLP elevated alloy Wire Rod mix to 49% in FY21 vs. 37% y-o-y, and elevated industry share to 20% in FY21 vis-a-vis.12% y-o-y, supported by elevated share in 2Ws segment. In the auto segment, domestic industry share grew to 15% in FY21 vs. 12% y-o-y.
Europe Ebitda in-line structural options awaited: Ebitda came in line at Rs 11.9 bn vs damaging Rs 7.2 bn in Q3FY21 (Ebitda/te of $66). Realisations elevated only $53/te q-o-q highlighting the spread expansion possibilities in Q1FY22e (in spite of the improve in iron ore costs).