India: Tata Steel reports best-ever sales in Q2FY'23 while production edges lower

Steel major Tata Steel has posted its best-ever sales during the quarter despite geopolitical issues and seasonal factors which led to a volatile operating environment, while apparent steel consumption was largely stable q-o-q in Q2.

Demand from automotive sector recovered, while infrastructure and capital goods were impacted due to seasonal disruptions, SteelMint learnt at the company's investors' call held on 1 November.

The steel major aims to achieve net-zero carbon emissions by 2045 by pursuing multiple pathways. In addition, the Kalinganagar phase II expansion will help in improving the energy balance and reducing carbon footprint.

Capex for the quarter was around INR 3,198 crore driven by the acceleration of the Kalinganagar project.

Expansion plans:

• 6 mnt/year pellet plant will be commissioned in Q3FY23 in Odisha's Kalinganagar, which will help the company save costs.
  
  
• The pickling line and 2.2 mnt/year cold rolling mill complex (CRM) will be commenced in phases, followed by the galvanisation and the continuous annealing lines. This will enable the steelmaker to enrich its product mix.
  
  
• The outer shell of the blast furnace (BF) has been erected and the expansion of 5 mnt/year at Kalinganagar is currently on track, which will be completed by end of FY24.
  
  
• Work for setting up of 0.75 mnt/year electric arc furnace (EAF) in Punjab has started. This is an important milestone in the company's net zero transition.
  
  

The company has successfully commissioned Neelachal Ispat Nigam Limited's (NINL) in October, within three months of completion of its acquisition and ramp up is also progressing well.

Other highlights:

• Production down q-o-q: Tata Steel reported steel production at 4.64 mnt in Q2FY'23, down 2% as against 4.73 mnt in the preceding quarter. However, production rose 2% y-o-y as against 4.56 mnt in Q2FY'22.
  
  
• Sales up 18% q-o-q: The company's sales rose by 18% q-o-q to 4.76 mnt in Q2 as against 3.89 mnt in Q1. On an annualised basis, too, volumes moved up by 8% from 4.42 mnt in the same period last year.
  
  
• EBITDA falls 47% on quarter: Tata Steel's standalone earnings before interest, tax, depreciation and amortisation (EBITDA) fell by 47% q-o-q to INR 5,135 crore in Q2FY'23 in contrast with INR 9,616 crore last quarter. On y-o-y basis, it declined sharply by 62% against INR 13,557 crores in Q2FY'22. Utilisation of higher-cost inventory of raw materials and steel along with lower realisations impacted EBITDA margins during the quarter.
  
  

The company's guidance on net realisations for the third quarter is around INR 800/t lower than this quarter.

Coking coal prices fall q-o-q: Coking coal consumption costs is likely to fall by $80/t. Prices of coking coal witnessed a downward trend during the quarter.

In addition, the company expects steel prices to remain rangebound and strong demand recovery from key demand industries - automobile and construction/infrastructure in the second half of FY'23.