Tata Steel has reported adjusted consolidated Ebitda of Rs 10.4 bn against consensus of Rs 12.9 bn. While standalone numbers were broadly in line, Tata Steel Europe (TSE) disappointed with Ebitda loss of $42/te (expected Ebitda loss of $6/te). TSE Ebitda has gains on account of sales of emission rights and wage support from European and UK government, while exchange fluctuations impacted. Lower volumes in standalone operations (down 30% y-o-y) impacted Ebitda. Management did highlight Rs 20 bn in costs remain unabsorbed due to lower volumes, i.e operating leverage impact.
FCF generation has been very impressive at Rs 7 bn for the group broken into Rs 16.8 bn in India and Rs 9.8 bn overseas. This has helped maintain net debt q-o-q. Tata Steel remains our top pick, as earnings tailwind (domestic price increases + impending price increase in Europe) and elevated net debt to market cap augurs well. Maintain Buy.
