Continued sustenance of strong realisations in the domestic business and improving demand outlook for international business shall provide further positive triggers for Tata Steel, says Nomura
Tata Steel reported improvement in its March quarter results that was led by its domestic operations. Continued sustenance of strong realisations in the domestic business and improving demand outlook for international business shall provide further positive triggers for Tata Steel, says Nomura in a research note.
On a standalone level, Tata Steel's 4Q domestic revenues were at Rs122 billion. Growth was at 13% year-on-year helped by higher sales volume (+6% year-on-year). Nomura said it believes that this was largely on account of higher than expected realisation. Volume at 2.04mnT in 4Q grew by 6% year-on-year. For FY14, volume at 8.52mnT was up 14% year-on-year beating industry volume growth which was flat year-on-year.
Nomura says, domestic realisation at Rs46,966 per tonne is a positive surprise and was the key swing factor for the steelmaker leading to improvement in the operating profit. Realisations grew 5% quarter-on-quarter helped by price increases announced by the company in the past few months.
The strong operating performance translated into a beat at the net level. Standalone net profit at Rs21.2 billion (adjusting for one off loss) was 21% higher than analyst forecasts.
The brownfield Jamshedpur capacity has been fully ramped by end of FY14 which helped in cost efficiency as well as better realisation due to higher flat mix, says the research note.
According to Tata Steel management, debt levels will peak in FY15 once Kalinganagar expansion completes but will taper off in FY16 due to higher cash generation and lower capex. As of end-March 2014, total net debt of the Tata group company stands at Rs673 billion. On deleveraging plans, management noted that it is currently not looking to raise fresh equity rather will focus on increasing internal cash generation (ramp up post completion of Kalinganagar) and sale of non-core assets, Nomura said.
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