Why Tata Steel Share Price is Falling

All the news these days is about Adani group stocks.

Ever since US based short-seller Hindenburg released its report on 24 January 2023, the performance of Adani group stocks has remained quite volatile.

But what about Tata group stocks? How are the best companies within the Tata group performing on the bourses?

Well, the performance of Tata group companies has remained rangebound during this period...

However, one stock from the lot has corrected a bit in recent sessions. We're talking about Tata Steel.

Tata Steel - Nifty 50 stock's share price is under pressure after the company released its quarterly numbers for the quarter ended December 2022.

In the past 4 trading sessions, the stock is down 7%.

Tata Steel Q3 results

For the quarter ended December 2022, Tata Steel reported total sales of Rs 573.5 billion (bn). Sequentially, sales were down 5% and on a YoY basis, sales were down by 6%.

However, the major concern here is the net profit. Tata Steel reported a surprise loss this quarter and the number was big...

Tata Steel's quarterly net loss came in at Rs 25.6 bn! In absolute terms, net profit fell by Rs 37.5 bn sequentially, and Rs 119.8 bn on a YoY basis.

The company has reported muted numbers for three consecutive quarters now.

Tata Steel Quarterly Performance

Quarter ending	Mar-22	Jun-22	Sep-22	Dec-22
Total revenues (Rs in m)	6,93,235	6,34,301	5,98,775	5,70,836
Growth	14%	-9%	-6%	-5%
Profit after tax (Rs in m)	96,758	75,545	11,952	-25,624
Growth	6%	-22%	-84%	-314%
Net profit margin	14%	12%	2%	-4%

Data source: Equitymaster

This muted performance across quarters could be due to decreasing steel prices and increasing raw material costs.

However, it's interesting to note that the Indian business of Tata Steel revived in the quarter under review because of controlled input prices.

The Europe segment on the other hand, dragged down the entire Q3 results.

Tata Steel's earnings before interest, tax, depreciation and amortisation (EBITDA) per tonne rose sequentially in the third quarter but it was dragged down by huge operating losses reported in Europe.

The European business of the company suffered because of a drop in steel realisations, which was partly offset by growth in deliveries.

The margins of the segment were further impacted by the change in inventories. The change in inventories was driven by a decline in the weighted average cost of inventory and NRV loss on steel inventory amounting to £ 55 m (about Rs 5,496.9 m).

What next?

The company's Europe business is under intense pressure at the moment as raw material prices continue to remain volatile. The EBITDA per tonne for the Europe business stood at a negative Rs (78.1) bn.

Industry experts are of the view that EBITDA per tonne is likely to have bottomed out in Q3.

In Europe, the fundamentals are still a bit weak. But the good news is gas prices are falling.

TV Narendaran, CEO and managing director, of Tata Steel, said in a recent interview,

• "I see the India side continuing to do better quarter on quarter. Europe probably will have its toughest quarter in Q3 because that's when the demand was most fragile, and the costs were not any lower. But I'm seeing things starting to improve in Europe as well."

Along with that, rising steel prices globally and the revival of Chinese economy suggests that the company may slowly move out of this dark phase.

Steel prices have been going up in India for the last couple of weeks, partly driven by demand, because January to June is typically the peak season for steel consumption. Steel prices both in flat and long products have gone up around Rs 3,000-5,000.

Even in China, in the last four weeks, steel prices have gone up by almost US$ 100 (about Rs 8,254.3).

The company is expecting Indian steel demand to pick up because of the government's continued focus on infrastructure.

Along with macro changes, the company also expects to increase its production capacity. The company currently produces 20 m tonnes in India. In the next 5-10 years the management expects the company to reach a capacity of 45-48 m tonnes.

However, deleveraging may be difficult for the company because of gas prices in Europe, coal prices, and working capital.

In fact, working capital ate a lot of money this year. Tata Steel also acquired Neelachal this year for Rs 120 bn.

How shares of Tata Steel have performed recently

Tata Steel share price is down 1% in 2023 so far. In the past one year, it has fell 6%.

Tata Steel touched its 52-week high of Rs 138.6 on 06 April 2022. Its 52-week low was Rs 82.7 touched on 26 June 2022.

About Tata Steel

Tata Steel is Asia's first integrated private steel company.

The company is primarily engaged in the business of manufacturing and selling finished steel goods.

It's present across the value chain, from the mining of iron ore and coking coal to the distribution of steel, and value-added products.

The company caters to several industries through its broad product portfolio, including automobiles, construction, agriculture, industrial, and general engineering. It has a global presence and caters to the steel needs of over 50 countries across five continents.

To know more about the company, check out Tata Steel's financial factsheet and its latest quarterly results.

You can also compare Tata Steel with its peers.

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...