Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tata Steel Ltd (BOM:500470, Financial) achieved its best-ever Q1 sales with deliveries at 4.94 million tonnes, aided by a 4% year-on-year growth in domestic deliveries.
- The company witnessed a 15% year-on-year growth in its retail brand Tata Tiscon, driven by enhanced reach and consumer connect programs.
- Engineering goods registered a 19% year-on-year growth, driven by the best quarterly supplies to railways and an 8% year-on-year growth to the consumer durables industry.
- The company is progressing well on its Kalinganagar expansion, with the blast furnace start-up expected towards the end of September, aiming to produce about 1.7 million tonnes from the new facility.
- Tata Steel Ltd (BOM:500470) has adopted a multipronged approach to sustainability, including process improvement, carbon direct avoidance, and carbon capture and utilization, with significant progress in India and Europe.
Negative Points
- Global steel demand was impacted by subdued economic activity and tight monetary policy conditions, leading to soft steel prices in the US and EU.
- Domestic steel prices in India were stable but declined during the quarter, offsetting earlier increases.
- The company's crude steel production in India saw a 2% quarter-on-quarter decline due to plant maintenance shutdowns.
- Tata Steel UK reported an EBITDA loss of GBP91 million, widening from GBP34 million in the previous quarter, despite underlying performance improvements.
- The company faces potential cost increases due to a recent Supreme Court ruling allowing states to levy taxes on mineral rights, which could impact the cost structure of its mining operations.
Q & A Highlights
Q: Can you share some details on NSRs and cost movements across India and Netherlands, and the outlook for the UK?
A: In India, net realizations for Q2 are expected to be about INR1,500 per tonne lower than Q1. In the UK, projections are flat, while Netherlands is projecting a GBP60 reduction in net realizations for Q2 compared to Q1. Coal costs in India will be about $15 per ton lower in Q2 compared to Q1, and in the Netherlands, about $26 per ton lower. The UK will see a $7 per ton reduction in iron ore costs, and the Netherlands will see a $17 per ton reduction. Once the second blast furnace in the UK is closed, we expect to reach breakeven or slightly positive EBITDA in the second half of the year.
Q: What are the timelines and priorities for Tata Steel's expansion plans?
A: The new lateral expansion will get the first priority, followed by the Kalinganagar expansion from 8 to 13 million tonnes. The Mera monthly plan will go from 5 to 6.5 million tonnes. This brings us close to 25 million tonnes. We also have plans for electric arc furnaces (EAFs) in the west and south, leveraging scrap availability. The goal is to reach 40 million tonnes by 2030, with potential for further growth beyond that.
Q: What are the additional demands from the Labour Party in the UK regarding the grant agreement?
A: The new government is supportive and wants to explore more investment opportunities to make the UK steel industry stronger. They are interested in how to make the UK steel business more valuable and sustainable, including training for affected employees. The focus is on ensuring the base project for the electric arc furnace (EAF) at Port Talbot proceeds as planned.
Q: What is the impact of the recent Supreme Court judgment on Tata Steel's contingent liabilities?
A: The Supreme Court ruled that states have the power to levy taxes on mineral rights. This ruling is complex and will affect mineral-linked industries in India. We are awaiting further orders from the Supreme Court to understand the full implications. Currently, there are no direct demands from other states similar to Odisha.
Q: Can you provide an update on the cold-rolling mill and rolling mill operations?
A: The cold-rolling mill has been ramping up well, producing full hard cold-rolled products. The continuous annealing line will be commissioned in August, followed by the galvanizing line towards the end of the financial year. The mill will cater to high-tensile grades and high-end galvanized steel for the automotive industry. Current production is around 50,000-60,000 tonnes per month.
Q: What are the net debt numbers for Tata Steel UK and Tata Steel Netherlands?
A: Both Tata Steel UK and Tata Steel Netherlands have about GBP600-800 million of debt, mostly for working capital needs. Netherlands was debt-free until about 15 months ago and is expected to return to that status in the next 18 months. The UK debt includes about GBP200 million of old acquisition debt.
Q: What is the timeline for the Louisiana project completion and ramp-up?
A: The Board-approved timeline is two years from March 2024, aiming for completion by March 2026. We are hopeful to have the plant up and running well before that. The ramp-up to full capacity should be quick, as it is an electric arc furnace with a rolling mill.
Q: How will the recent Supreme Court judgment affect Tata Steel's cost structure?
A: The judgment allows states to levy taxes on mineral rights, which could increase costs. The central government is expected to address this issue to ensure uniformity and competitiveness. The impact on costs will depend on how states implement these taxes and any potential amendments to the MMDR Act.
Q: What are the plans for LNG-powered logistics systems?
A: Tata Steel is taking initiatives to make its supply chain greener, including using LNG-powered trucks and ships. These initiatives will continue across Tata Steel sites to reduce the carbon footprint, especially for long-distance cargo movement.
Q: What is the status of the chrome ore mine surrender process?
A: The surrender process is ongoing and involves multiple stages of approval. The mine is still operating and accounting for royalties and other expenses. The process is expected to be completed in the next six to eight months.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
