Tata Steel slips 5% on profit-booking after disappointing Q3 performance

Shares of Tata Steel slipped 5 per cent to Rs 112 on the BSE in Tuesday’s intra-day trade on profit booking after the steel major reported a consolidated net loss of Rs 2,502 crore for the quarter ended on December 31, 2022 (Q3FY23), on account of higher expenses.

At 09:21 AM; the stock quoted 3 per cent lower at Rs 114.60, as compared to 0.13 per cent rise in the S&P BSE Sensex. In past three months, Tata Steel had outperformed the market by surging 10 per cent, as compared to 1 per cent decline in the S&P BSE Sensex.

The disappointing performance during the quarter was on the back of a sharp drop in realisations in Europe coupled with a non-cash deferred tax expense on account of British Steel Pension Scheme. “Profitability was affected by sharp drop in realisations and spreads in Europe,” Tata Steel said.

Tata group company had posted a net profit of Rs 9,598 crore in the year-ago period (Q3FY22). Consolidated revenues from operations at Rs 56,757 crore were down 6.2 per cent from Rs 60,525 crore in the year-ago period. The earnings before interest, depreciation, tax and amortization (ebitda) was down 74 per cent year-on-year and 34 per cent sequentially at Rs 4,154 crore.

In the previous quarter (Q2FY23), consolidated revenues had stood at Rs 59,512 crore and the net profit was Rs 1,514 crore.
Commenting on the performance, T V Narendran, chief executive officer and managing director, Tata Steel, said that Europe deliveries were lower in 9MFY23 due to slowdown in demand. “Recession concerns weighed on steel prices, which coupled with elevated energy costs affected our performance,” he said. READ MORE

“For Q3FY23, Tata Steel consolidated EBITDA came in broadly in line with our estimate. While EBITDA/tonne of Indian operations came in below our estimate, however better than expected performance from other subsidiaries (excluding Tata Steel European operations), aided the consolidated performance during the quarter,” ICICI Securities said.

Meanwhile, Q4 is a seasonally strong quarter owing to higher construction activities, no impediments from monsoon and supportive weather. The recent Union Budget also gave an impetus to the steel sector by increasing the budgetary allocation to the infrastructure and construction sectors, which will also drive steel demand in India, Motilal Oswal Financial Services (MOFSL) said.

China’s economy is gradually opening up after three years of Covid-related lockdowns; this will gradually boost steel demand, thereby providing strong price support to the sector. Prices of HRC, CRC and Rebar have increased substantially after touching a recent low in Nov/Dec’22, which augurs well for the steel sector in the current quarter. However, rising coking coal costs, higher interest rates and inflationary pressures across Europe are key concerns, the brokerage firm said in its result update.

MOFSL believes the stock is fully valued, given the current strong steel price outlook globally and Tata Steel’s strong presence in Europe. Though steel prices have moved up sharply over the last few weeks, the increase is offset by higher coking coal prices, which could affect margins in 4QFY23.

Technical View

Bias: Negative

Target: Rs 109; Rs 106.50

Resistance: Rs 115; Rs 120

The near-term bias for Tata Steel is likely to remain subdued, as the stock is seen trading below its 20-DMA (Daily Moving Average) for the third straight trading session. 

As per the daily chart, the stock may face immediate resistance at Rs 115, which is where the 50-DMA stands. Above which, the stock may head towards the 20-DMA at Rs 120.

The stock is also currently trading below the lower-end of the Bollinger Bands on the daily chart, which further works in favour of the bears. 

On the downside, the stock is expected to test support around the 100-DMA at Rs 109, or dip further below towards its 200-DMA at Rs 106.50-odd level.

(With inputs from Rex Cano)