Tata Steel Shares Drop 5% After Weak Q4 Earnings: Buy, Sell, or Hold?

Tata Steel faced a significant revenue decline in the fourth quarter of the fiscal year. The total revenue from operations dropped to ₹58,687 crore from ₹63,131.08 crore in the same period last year. This decline was primarily due to a nearly 4% decrease in its core India business, which usually contributes around 62% of the total revenue. Specifically, revenue from India’s business fell to ₹36,635 crore from ₹38,048 crore in Q4 FY23.

Similarly, revenue from Tata Steel’s operations in the Netherlands and the UK also saw declines, dropping to ₹13,908 crore and ₹6,800 crore, respectively, compared to ₹15,444 crore and ₹7,457 crore in Q4 FY23.

Annual Performance

For the entire fiscal year, Tata Steel’s revenue decreased to ₹2,29,171 crore from ₹2,43,353 crore in FY23. Additionally, the company reported a net loss of ₹4,910 crore in FY24, a significant shift from the net profit of ₹8,075 crore in FY23.

Market Conditions

Tata Steel highlighted the challenges posed by a global moderation in steel prices during the January–March 2024 period. Steel prices in key regions like the US, EU, and China witnessed declines ranging from 6% to 25%. Despite this, China continued to export steel at high levels, leading to concerns about oversupply and subdued demand in other markets.

Outlook

In India, Tata Steel reported a 6% year-on-year growth in deliveries, reaching approximately 19.9 million tons. The company expects further growth, particularly from the 5-MTPA capacity expansion at Kalinganagar. The Indian market showed signs of improvement, especially in segments like auto, infrastructure, and construction.

Dividend and Debt

The company’s board has recommended a dividend of ₹3.60 per equity share for FY24. Additionally, Tata Steel plans to raise up to ₹3,000 crore through non-convertible debentures (NCDs) to support its financial activities.

Brokerage Recommendations

Global brokerage firm Jefferies maintains a ‘buy’ rating on Tata Steel with a target of ₹200. They noted a 5% quarter-on-quarter rise in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) in Q4, surpassing estimates by 7%.

On the other hand, Morgan Stanley has an ‘equal-weight’ rating on Tata Steel with a target of ₹135. They acknowledged a better-than-expected performance in both domestic and overseas business segments but highlighted challenges in the UK, where existing heavy assets are nearing closure.

Investor Guidance

Investors should carefully consider these factors before making any decisions regarding Tata Steel stock. While some analysts recommend buying due to potential long-term growth prospects, others suggest caution given the challenges in certain business segments. It’s essential for investors to conduct thorough research and consult with financial experts if needed before taking any action.