Why Tata Steel Share Price is Falling

Tata group company Tata Steel has been grappling with considerable selling pressure and a lackluster performance in 2023 so far. The stock has declined by 11% so far in 2023. Yesterday, shares of the company fell another 2%.

Not only Tata Steel but the entire steel and metal sector in general, has struggled in 2023. The BSE Metal index is down 8% YTD while the Nifty Metal index has declined by 18%.

Let's take a look at the probable reasons behind the fall in Tata Steel shares and what lies ahead for the company.

#1 Disappointing Q4 results

For the March 2023 quarter, Tata Steel reported a 9% YoY drop in revenue at Rs 629.6 billion (bn). This was against the revenue of Rs 693.2 bn reported in the same quarter last year.

Net profit for the quarter came in at Rs 17.1 bn. The net profit was 83% lower compared to the year ago quarter where the top steel company posted a profit of Rs 97.6 bn.

The company's earnings have been affected by falling steel prices and increasing coking-coal costs since the first quarter of the previous fiscal year. Tata Steel experienced a 6% rise in the cost of raw materials consumed. Also, delivery volumes in Europe declined by over 11%.

At the operating level, EBITDA declined by 52% YoY to Rs 72.2 bn in the March 2023 quarter from Rs 150.3 bn in the corresponding period in the previous year.

The EBITDA margin stood at 11.5% in the reporting quarter compared to 21.7% in the corresponding period in the previous financial year.

Tata Steel's net debt has decreased by Rs 39 bn to Rs 678.1 bn while maintaining strong liquidity of Rs 286.9 bn.

Despite the challenging financial performance, the company's board announced a dividend of Rs 3.60 per equity share.

#2 UK unit uncertainty

Tata Steel recently expressed concerns about its ability to continue operating due to a potential economic downturn in Europe.

The company's board conducted a stress test to assess the impact of the economic downturn on Tata Steel Europe.

The results indicated that the mainland Europe operations possess adequate liquidity to navigate the crisis. This raised concerns regarding the potential adverse consequences for the company's UK business.

Factors such as higher inflation and increased interest rates were identified as external factors contributing to the economic downturn in Europe. Additionally, supply chain disruption resulting from the conflict in Ukraine was also recognised as a significant factor.

These combined factors could potentially impact the future business prospects of both the UK and the MLE value chain.

In its recent results, Tata Steel reported a significant decline of over 60% in earnings at Tata Steel Europe, which encompasses the UK business, between the previous year and March 2023.

This has led to negative sentiment in the stock, dragging the share price down.

Nevertheless, Tata Steel continues to implement measures to enhance business performance and preserve cash.

Additionally, Tata Steel is engaged in discussions with the UK government regarding support for transitioning to steelmaking processes with lower carbon emissions.

Strong growth prospects

For the financial year 2024, the company has allocated Rs 43.9 bn towards capital expenditure during the first couple of quarters and a total of Rs 141.4 bn for the full year.

The phased commissioning of the expansion project in Kalinganagar is progressing, with the CRM complex successfully initiating the production of FHCR coils.

Within a remarkable span of 9 months since the acquisition, Tata Steel has effectively ramped up Neelachal Ispat Nigam Limited to achieve an annualized production capacity of 1 million tons.

Furthermore, the Cold Mill upgrade project in Ijmuiden is on track, and the relining of BF6 commenced in early April, reinforcing the company's commitment to enhancing operational efficiency and production capabilities.

Going forward, the company has multiple projects in progress at various locations in India as it works towards reaching 40 MTPA by 2030.

How Tata Steel shares have performed recently

Tata Steel share price is down 11.2% in 2023 so far. In the past one year, the shares have delivered a negative return of 10.3%.

In the past month, shares of Tata Steel have declined by 1.5%.

Tata Steel touched its 52-week high of Rs 124.3 on 19 January 2023. Its 52-week low was Rs 82.7 touched on 26 June 2022.

It is currently trading at a PE (Price to Earnings) multiple of 8.4x, while PB (Price to Book) ratio stands at 0.9x.

About Tata Steel

Tata Steel is Asia's first integrated private steel company.

The company is primarily engaged in the business of manufacturing and selling finished steel goods.

It's present across the value chain, from the mining of iron ore and coking coal to the distribution of steel, and value-added products.

The company caters to several industries through its broad product portfolio, including automobiles, construction, agriculture, industrial, and general engineering. It has a global presence and caters to the steel needs of over 50 countries across five continents.

To know more about the company, check out Tata Steel's financial factsheet and its latest quarterly results.

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