Third-quarter losses drove the Tata Steel stock to the list of top three decliners on Indias biggest indices Monday.
Yet, prudent capital allocation and prospects of global steel prices reaching a temporary floor have led analysts to assign a buy rating on the company thats Asias oldest manufacturer of the primary infrastructure alloy.Europe remains a weak point in Tata Steels global operations, but the thrust on slashing debt by $1 billion has turned analysts in its favour.
Added to the restraint on financing costs is Tata Steels conservative approach to ironore auctions.It decided not to bid beyond a certain threshold in the ongoing Odisha iron ore auction, a step that could help revive performance in the coming quarters, said an analyst report by Edelweiss on Monday.Odisha has auctioned five mines so far; four have been designated for captive use, and one for merchant use.
JSW Steel has won four captive mines and paid premiums ranging from 95 per cent to 132 per cent.We believe this is unjustifiably high, said Investec analysts Ritesh Shah and Chintan Shah in a sector research report.
Thus, Tata Steels decision to not bid beyond a certain level is a welcome move.Edelweiss has maintained a buy rating for the steel major with a reduced target price of 570 from 590.
Investec has maintained a buy rating for Tata Steel with a reduced target price of 515 from 560 earlier.
On Monday, the Tata Steel shares lost nearly 6 per cent to 443.65.The companys consolidated performance was affected by its Europe business.
Tata Steel Europe reported an EBITDA loss of 9.56bn, owing to a squeeze in spreads that mitigated the favourable impact of the transformation program.Until December 2019, the company has spent 50 million for buying carbon credits.
The cost is estimated to further go up due to additional carbon credits the company must purchase.During the quarter ended December, Tata Steel deleveraged 2,300 crore.Realisation is expected to increase in Q4 FY20 by 3,000 per tonne.
Branded products grew 22 per cent QoQ while auto segment deliveries stayed flat.
The coking coal price is expected to be lower in Q4FY20 by $15-20bn, which is a positive sign said Abhijith Mitra, research analyst, ICICI Securities.