Anand Rathi said that Tata Steel consolidated revenue for 4QFY21, increased by 19% QoQ and 39% YoY to Rs 499.8 billion. EBITDA grew by about 48% QoQ and 204.9% YoY to Rs 141.8 billion with strong underlying performance in both India and Europe. India operations, which include standalone Tata Steel BSL and Tata Steel Long Products, generated revenues of ₹ 301 billion, which translated to a 19% QoQ and 54% YoY growth.

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Anand Rathi said that during the quarter, Tata Steel achieved best-ever quarterly crude steel production of 4.75 million tons in India. So FY21 production was lower due to the pandemic-driven disruptions in the first quarter. However, the company achieved highest ever annual delivery volumes of 17.31 million tons in India and quarterly deliveries improved 16% on a year-on-year basis to 4.67 million tons. In 4QFY21 management achieved highest ever quarterly delivery volumes in the Automotive and Special Products segment.

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Tata Steel’s management guided at a QoQ improvement of ₹ 6,000-7,000/t in realization in 1QFY22, whereas costs are expected to rise by ₹ 2,000/t. Company key subsidiaries, Tata Steel BSL and Tata Steel Long Products have also delivered strong operating performance, says Anand Rathi.

Tata Steel has plans to expand its iron ore capacity to 50 MT in next 2-3 years. The Kalinganagar expansion of 5 MT is expected to be complete by FY24. Company is not looking to sell its East Asia operations as the bids received have been at prices which are lower than company’s expectations. Tata Steel’s management expects Asia steel prices to remain buoyant, amid a strong demand recovery, pollution control led production curbs in China, and elevated raw material prices. Strong international steel prices, robust demand, and supply tightness should support steel prices in India and Europe. The management has guided at incremental volumes of 1mt each in India/Europe (17.3mt/8.8mt in FY21), explains Anand Rathi.

Anand Rathi says that Shareholders have approved the merger of Tata Steel BSL with Tata Steel. A joint “scheme petition” has been filed with the NCLT to sanction the scheme with effect from April 1, 2019. The merger of Tata Metaliks and Indian Steel and Wire Products with Tata Steel Long Products is also under way. The Board of Directors has recommended a dividend of ₹ 25 per fully paid equity share and ₹ 6.25 per partly paid equity shares.

Tata Steel delivered strong financial performance with strong revenue growth and margin expansion along with solid free cash flow. Strong recovery in India business, efficient working capital management coupled with sharp capital allocation should improve prospects further. China's withdrawal of export rebates. Japan is also looking to cut steel capacity and reduce exports. Focus in carbon footprint reduction could drive a structural change in the international steel market. This could translate into lower Chinese exports and support global steel prices for longer. Domestic steel prices are at a discount to import parity prices allowing companies to push through price hikes. European operations are also expected to remain profitable with an improvement in spreads. Therefore, Anand Rathi maintains our BUY rating on the stock with a roll forward target price of Rs 1437 using SOTP valuation.