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Tata Steel Ltd

| Q2 FY 26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤13th Nov 25

Summary : Tata Steel demonstrates strong India growth and cost control, but faces significant challenges in UK/Europe and regulatory hurdles for expansion.

Management Perspective positive : Tata Steel has delivered strong improvement on QoQ and YoY basis. We certainly see an improvement in Netherlands from 4Q onwards. India is the only major country which is showing double-digit growth in steel consumption.

Concall Report Analysis & Insights

Business Overview

  1. India crude steel production increased 8% QoQ and 7% YoY to 5.65 million tons.
  2. India's net realisations dropped by Rs 1,700 per ton QoQ, but EBITDA margin improved 80 bps to 25%.
  3. Consolidated revenues for 2QFY26 were Rs 58,689 crores, up 10% QoQ, driven by India volume growth.
  4. UK deliveries were ~0.6 million tons, with EBITDA loss widening from -£41 million in 1Q to -£66 million in 2Q.
  5. Netherlands' revenues were ~€1.5 billion, with stable volumes, aided by reduced conversion costs.

Future Growth Prospects

  1. Kalinganagar plant is ramping up, expected to reach 7-8 million tons per annum.
  2. Neelachal expansion aims to increase capacity from 1 million tons to 6-10 million tons.
  3. Ludhiana plant will add 0.8 million tons, with debottlenecking at other sites for additional volumes.
  4. Acquisition of remaining 50% stake in Tata BlueScope Steel Private Limited to enrich product mix.
  5. Netherlands decarbonisation journey with potential €2 billion government support for phase one.

Management Insights

  1. Global dynamics are shaped by tariffs, geopolitical tensions, and elevated steel exports.
  2. Tata Steel delivered strong improvement QoQ and YoY, driven by volumes and cost transformation.
  3. Cost transformation program achieved Rs 5,450 crores in 1HFY26, 94% compliant to plan.
  4. India's steel consumption is expected to grow at double-digit rates, exceeding GDP growth.
  5. The company is focused on value-added portfolio growth and downstream businesses.

Signs of Skepticism

  1. Management acknowledges UK EBITDA breakeven is difficult without government action.
  2. Uncertainty regarding the UK government's timeline for CBAM consultation and policy support.
  3. The high valuation of the BlueScope acquisition relative to its recent profitability was questioned.
  4. Netherlands government support for phase two of decarbonisation is not committed.
  5. Guidance for India 3Q price decline is conservative, not factoring December increases.

Risk Factors

  1. Global macroeconomic uncertainty, trade tariffs, and elevated Chinese steel exports impact pricing.
  2. UK market is vulnerable to cheap imports, with demand shrinking and quotas increasing.
  3. Delay in UK government policy intervention to support the domestic steel industry.
  4. Environmental clearance issues are delaying the Neelachal capacity expansion timeline.
  5. Political changes in Netherlands could affect government commitment to decarbonisation projects.

Good To Know

  1. Consolidated EBITDA margin expanded by 280 bps in 1HFY26 to 15%.
  2. Operating cashflows were ~Rs 10,000 crores in 1HFY26, with Rs 7,000 crores capex.
  3. Net debt to EBITDA stands at 3x on a consolidated basis.
  4. Divestment of Ferro Alloy Plant in Jajpur, Odisha, expected to complete within three months.
  5. The company aims to maintain Net Debt to EBITDA between 2.75x and 3x.

Key Drivers

  1. India volume growth from ramp-ups.
  2. Cost transformation program delivering savings.
  3. European protectionist policies aiding Netherlands.
  4. Value-added product mix enrichment.

Key Analyst Discussions

Competitive Environment

  1. European protectionist measures (50% import quota reduction, 50% duty) are positive for Netherlands.
  2. UK is negatively impacted by EU actions, as it is left out of protectionist policies.
  3. UK market is flooded with cheaper imports, shrinking metal over margin.
  4. India's steel industry is impacted by international steel prices and imports.
  5. Thailand's steel market saw an upsurge due to quality concerns, benefiting Tata Steel Thailand.

Market Trends & Consumer Behavior

  1. Seasonal rains in 2Q impacted construction activity in India.
  2. UK demand for flat products has declined by 33% since 2018, while quotas increased by 20%.
  3. India's domestic steel demand is strong, showing double-digit growth.
  4. European steel prices are expected to move towards US prices due to new policies.
  5. UK prices are moving towards India prices, which is unsustainable for the UK industry.

Financial Highlights

  1. India's 3Q realisations are guided to be Rs 1,500 per ton lower than 2Q.
  2. India's coking coal consumption costs are expected to be $6 per ton higher in 3Q.
  3. Netherlands' 3Q realisations are guided to be €30 per ton lower, but 4Q expected better.
  4. UK EBITDA breakeven by 4QFY26 is challenging without government policy intervention.
  5. The company's Net Debt to EBITDA is 3x, with a target range of 2.75x to 3x.

Product Composition

  1. Kalinganagar's cold rolling mill and galvanising lines are ramping up for richer product mix.
  2. Ludhiana EAF operation targets the retail market, aiming for higher realisations and lower logistics costs.
  3. The pipe business is expanding towards 4 million tons, utilizing both owned and leased capacities.
  4. BlueScope acquisition will help consolidate margin and grow the product mix.
  5. EAF operations offer cost advantages, especially with future carbon pricing.

Strategic Considerations

  1. Neelachal capacity expansion is delayed due to environmental and forest clearance issues.
  2. Netherlands decarbonisation project (phase one) has €2 billion government support, but phase two funding is uncommitted.
  3. UK CBAM consultation process has not yet started, expected to go live after EU CBAM in 2027.
  4. Divestment of ferrochrome unit is linked to the planned surrender of Sukinda mining lease.
  5. Iron ore sourcing strategy includes engaging with OMC/NMDC and exploring imports, not necessarily 100% captive.
Tata Steel Ltd (TATASTEEL) Concall Report Analysis & Insights | Dhanarthi