Near-term uncertainties cloud the horizon for Tata Steel
₹6,600 crore was better than expected, albeit lower year-on-year (y-o-y) by 8.6%, mainly due to the partial shutdown of its Netherlands facilities. Notably, losses from European operations declined sequentially. Still, the shares have been down 4% over the past two trading sessions since the results.
Investors could be concerned about the developments related to the UK operations. In FY24, the Netherlands and UK facilities contributed 38% of revenue, but incurred an Ebitda loss of over ₹7,000 crore. Thus, consolidated FY24 Ebitda stood at ₹22,300 crore, down 31% y-o-y.
The UK operations are undergoing a structural shift in the steel-making process and may take time to return to profitability. However, the Netherlands is expected to be Ebitda positive in Q1FY25 with the resumption of normal plant operations. Over the medium term, these units can add to the company’s profits meaningfully thanks to the evolving dynamics of the European steel market.
The market is changing because of the imposition of carbon tax on industries such as steel and the initiation of the Carbon Border Adjustment Mechanism (CBAM). CBAM, legislated in 2023, imposes a carbon tariff on imports from carbon-intensive industries to the EU and becomes effective from 2026. “Tata Steel is paying carbon tax of nearly $25-30 per tonne of steel produced which is projected to go up to more than $200 per tonne by 2033.
With the switch to green steel, a company can potentially generate savings of more than $100 per tonne on its 10 mtpa EU steelmaking capacity," said Satyadeep Jain, research analyst at Ambit Capital. Mtpa is a million tonnes per annum. Tata Steel has initiated the exercise to transition from high-emission steel making process through blast furnace
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