In Q1FY23, Tata Steel posted a consolidated net profit of ₹ 7,764.96 crore down by 12.83% yoy and 20.4% qoq. Consolidated revenue stood at ₹ 63,430 crore up by 18.6% yoy but down by 8.5% qoq.

Tata Steel shares will be turning ex-split on Thursday ahead of its record date. The company has announced a stock split in the ratio of 10:1 on its equity shares. Tata Steel has been in focus this week since its June 2022 quarterly results and ahead of the sub-division of equity shares. In Q1 of FY23, Tata Steel's bottom line was under pressure, while revenue witnessed double-digit growth year-on-year but dipped sequentially. In India, the company's deliveries were marginally lower due to moderation in exports, while business in the European market shined. Going forward, the majority of analysts have given a buy rating on Tata Steel.

On BSE, Tata Steel shares ended at ₹ 959.45 apiece up by ₹ 10 or 1.05%. The company's market cap is around ₹ 1,17,165.68 crore.

Tata Steel has fixed July 29 as the record date for a stock split of 10:1. Thereby, the shares will turn ex-split on July 28. The 10:1 ratio means Tata Steel will give 10 equity shares having a face value of Re 1 each on every one existing share having a face value of ₹ 10 each.

In Q1FY23, Tata Steel posted a consolidated net profit of ₹ 7,764.96 crore down by 12.83% yoy and 20.4% qoq. Consolidated revenue stood at ₹ 63,430 crore up by 18.6% yoy but down by 8.5% qoq.

In India, the company's deliveries were marginally lower by 2% YoY due to moderation in exports following the imposition of a 15% export duty. Consequently, domestic deliveries were successfully ramped up by leveraging our strong marketing network and agile business model. Here, revenue per ton rose by ₹ 8,534 sequentially to ₹ 83,625 per ton due to long-term contracts and product mix. Meanwhile, it reported an EBITDA of ₹ 9,582 crore, which translates to an EBITDA per ton of ₹ 23,557.

Meanwhile, in Europe, during Q1FY23, revenue per ton increased by £154 QoQ to £1,248 per ton due to long-term contracts and product mix. Further, the company achieved the highest ever quarterly EBITDA at £621 million, which translates to an EBITDA per ton of £290.

Should you invest in Tata Steel shares?

Ashish Kejriwal Research Analyst and Kunal Kothari Research Associate at Centrum said, "TSI’s profitability is expected to decline in Q2FY23 (Q2FY23E EBITDA/t of ~Rs14,300) driven by lower steel prices marginally offset by lower coking coal cost and higher volume. The full effect of lower coking coal prices will be reflected in Q3FY23, thereby improving margins. TSE’s profitability too is expected to fall due to lower prices and higher coking coal cost due to lag impact."

The duo added, "We expect release of working capital in H2FY23. A 6mtpa pellet plant and 2.2mtpa cold rolled mill is expected to be commissioned in H2FY23. High operating profits will help TATA to deleverage further in FY23 with net debt of ~Rs533bn at FY23‐end (FY22E‐end: ~Rs576bn) after including effect of NINL acquisition (~Rs121bn) which was completed on 4th July 2022. We do not foresee any further major acquisition by TATA in FY23. TATA’s stock split 10:1 will be on 29th July. We retain BUY, with a target price of Rs1,368."

Further, Ashutosh Somani and Heet Vora analysts at JM Financial said, "Growth capex towards 5mtpa Kalinganagar expansion is progressing well. The company expects to commission 6MTPA pellet plant at Kalinganagar in 3QFY23 followed by 2.2MTPA CRM expansion in 4QFY23 and 5MTPA BF expansion is expected by the end of FY24. Commissioning of Pellet plant at Kalinganagar will help in cost reduction. Net debt during the quarter increased to ₹ 545 billion (up ₹ 35 billion) on account of increase in working capital due to volatility in commodity prices. The company concluded the NINL acquisition during the quarter and expect the acquisition to drive growth of long products business. The company remains committed to its annual deleveraging target of $1 billion. We believe a balanced strategy towards de-leveraging, growth, and shareholder returns bodes well for the company. Maintain BUY."

JM Financial analysts have set a target price of ₹ 1,230 apiece on Tata Steel.

On the other hand, Abhijit Mitra, Mohit Lohia, and Pritish Urumkar Research Analysts at ICICI Securities said, "Tata Steel (TSL) consolidated EBITDA surprised on the back of strong Tata Steel Europe (TSE) EBITDA. TSE EBITDA expanded to $365/te (up $120/te QoQ) with support from contract realisations, favourable RM movement, and lower energy costs."

The trio added, "Negative EBITDA for Tata Steel long products is attributed to higher thermal coal prices as well as NRV provisions of ₹ 780 million on coking coal and iron ore. We maintain REDUCE with an unchanged target price of Rs827/share as we wait for the EBITDA contraction cycle to play out (we expect the downcycle to last 4-5 quarters with the peak being attained in Q2FY22)."

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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