Tata Steel, JSW Steel Q3 hurt by price erosion. Rebound on the horizon?

Tata Steel’s standalone Ebitda declined 8% year-on-year, but was 24% higher than analysts’ estimates, supported by lower other expenses and 8% growth in volumes. Ebitda is earnings before interest, tax, depreciation and amortization; it is a key measure of profitability for companies. 

Ebitda per tonne was still down 16% to ₹14,200 due to lower realization and firm raw material prices. The company’s European operations, accounting for 38% of consolidated revenue in the first nine months of FY25, recorded lower losses of ₹740 crore in Q3 vis-à-vis ₹2,900 crore last year. Fixed cost for the UK operations declined by about €80 per tonne (about ₹8,600) after manpower was reduced following the closure of the blast furnace. Losses for Netherlands business also decreased, aided by lower energy costs.

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JSW Steel recorded a similar performance, beating analysts’ estimates despite a 22% decline in its consolidated Ebitda, supported by 12% growth in volumes. The decline in Ebitda per tonne was sharper at 30% to ₹8,300. The management has projected coking coal prices to come down by ₹800-1,200 per tonne in Q4 along with marginally lower iron ore prices, which should help improve its profitability.

Tata Steel has largely completed its expansion with 5 mtpa (million tonnes per annum) Kalinganagar facility commissioned in September and limited capex planned for FY26. JSW Steel has several ongoing projects across downstream, captive iron ore mining and slurry pipeline. 

The ramp-up of 5 mtpa expansion at Vijayanagar is in progress, whereas the 1 mpta expansion at its subsidiary, Bhushan Power and Steel Ltd achieved full capacity during the quarter. It had also acquired a 20% stake in a coking coal mine in Q2FY25 which would provide about 1.2 mtpa of coking coal from April. A Kotak Institutional Equities report projects JSW Steel’s Ebitda per tonne to increase to ₹13,200 in FY27, along with 9% volume growth over FY24-27.

While the domestic outlook remains strong, Tata Steel is facing profitability issues for its Netherlands plant, with spreads hitting their lowest point since 2016. The spreads could get worse in Q4 with further decline in realization after annual contract renewals. The unit also faces uncertainty related to its clean energy transition. 

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The management has indicated its keenness to undertake a restructuring exercise involving reduction of manpower and fixed costs. Encouragingly, its subsidiary, Neelachal Ispat Nigam Ltd, achieved full capacity utilization and improvement in Ebitda by ₹3,000 per tonne, with better economies of scale. The unit has achieved Ebitda margin of 20%, up from 13% in Q2.

From their respective 52-week highs, Tata Steel’s share price has declined almost 30% with limited growth visibility, whereas JSW Steel has fared better with a decline of 12% as the outlook remains strong. According to Bloomberg data, the stocks are trading at enterprise values of 6.8x and 8.9x FY26 estimated Ebitda, respectively.

To be sure, the near-term prospects appear bright on account of falling input costs, lower imports, and expected government capex in Q4FY25. Volume gains from the ramp-up of Kalinganagar for Tata Steel and Vijayanagar for JSW Steel would be key triggers for the stocks. The icing on the cake would be an announcement of safeguard duties, which the industry is eagerly waiting for.

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