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Tata Steel has dipped nearly 5% to Rs 215 on the BSE after the company reported a consolidated net loss of Rs 2,127 crore for the third quarter ended December 31, 2015 (Q3FY16) against profit of Rs 157 crore in the same quarter year ago. The company had profit of Rs 1,529 crore in previous quarter.
Net sales during the quarter declined 16.6% to Rs 28,039 crore against Rs 33,633 crore in the corresponding quarter of previous fiscal. "Turnover slipped due to lower steel prices in Europe caused by an increase in low priced imports," Tata Steel said in a statement.
The consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 841 crore was much lower than the consensus estimate of Rs 1,409 crore according to Bloomberg and lower than the Rs 3,090 crore in the year ago quarter.
On business outlook, the company said the eurozone and UK economies continue to grow, however manufacturing in UK industrial activity continues to lag the service sectors.
Steel demand in the EU is expected to grow by +1.1% in 2016 in line with steel-using sector activity. A significant part of the increase is expected to continue to be supplied by imports. Low-priced imports expected to continue to put intense pressure on European steel industry?s margins, it added.
At 09:35 AM, the stock was down 3.3% at Rs 218 on the BSE. A combined 5.58 million shares changed hands on the counter on the BSE and NSE.
Net sales during the quarter declined 16.6% to Rs 28,039 crore against Rs 33,633 crore in the corresponding quarter of previous fiscal. "Turnover slipped due to lower steel prices in Europe caused by an increase in low priced imports," Tata Steel said in a statement.
The consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) at Rs 841 crore was much lower than the consensus estimate of Rs 1,409 crore according to Bloomberg and lower than the Rs 3,090 crore in the year ago quarter.
On business outlook, the company said the eurozone and UK economies continue to grow, however manufacturing in UK industrial activity continues to lag the service sectors.
Steel demand in the EU is expected to grow by +1.1% in 2016 in line with steel-using sector activity. A significant part of the increase is expected to continue to be supplied by imports. Low-priced imports expected to continue to put intense pressure on European steel industry?s margins, it added.
At 09:35 AM, the stock was down 3.3% at Rs 218 on the BSE. A combined 5.58 million shares changed hands on the counter on the BSE and NSE.
BROKERAGE VIEW
Tata Steel's recent results are an example of the pain the metals (steel) industry and the company is going through on the back of a fall in commodity prices. Given the recent performance and the subdued outlook, most analysts maintain a sell rating on the stock.
"Q3 worse than expected; India margins contract to sub-$100 levels in Q3. Major protectionist measures needed to get company back to profits. Visibility to get company back to profits are low," points out a note from CLSA.
Adds Tarang Bhanushali, an analyst tracking the company at IIFL: "We believe recovery in earnings would take longer than expected and maintain our Reduce rating with a revised price target of Rs 205. We believe government intervention would be needed against cheaper imports for the company to register a turnaround."
Goutam Chakraborty of Emkay, on the other hand, has set the target price at Rs 143. "While, domestic steel prices are likely to remain subdued, TSE business continues to be an overhang without any near term respite," he said in a post results note.
Analysts at Motilal Oswal, too, have given a thumbs-down to the stock and maintain a 'sell' rating. India business, they say, continues to witness margin pressure on declining steel prices, as advantage of captive iron ore is getting eroded.
"While we bake in some margin expansion on operating leverage and price increase, it will not be enough to alter the long-term trend. Europe business will continue to suffer from onslaught of imports and uneconomical operation due to high labor cost. South-east remains vulnerable to Chinese imports and is operating at wafer-thin margins. Maintain Sell with a FY17E P/ABV 1x based target price of Rs 146," Sanjay Jain and Dhruv Muchhal of MOSL suggest in a result analysis note.
