Profitability improved despite a drop in output. This was helped by a sharp drop in raw material prices as well as higher volumes. Ebitda is earnings before interest, tax, depreciation and amortization.

On a standalone basis (domestic operations), Ebitda was down 4.3% from ₹6,734 crore, mainly impacted by lower steel achievements. Realization during the quarter was lower due to the significant increase in exports from China. Even so, its domestic operations are on relatively decent footing, while losses in the UK remain a nagging concern for investors.

In Q2FY25, the UK business remained in the red with a loss of Ebitda ₹1,589 crore, up from ₹1,367 crore in the same quarter last year. The company’s UK business is undergoing a structural change necessitated by a high-cost operating structure and strict environmental regulations. The last furnace in the facility was shut down during the quarter and the construction of an electric arc furnace steel manufacturing was started.

The company signed the final agreement with the UK government which would provide £500 million of the total project cost of £1,250 million. It is also in the process of reducing staff, made redundant with the closure, involving a separation cost of around £150m. The company would save about £100 a tonne from lower labor costs and other overheads after the process is completed by June, management said.

Overall, management anticipates Ebitda losses from UK operations to start narrowing from Q3FY25 onwards. This, together with capacity growth in the Netherlands and favorable market conditions, should boost the overall Ebitda performance of its European operations.

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Tata Steel Netherlands reported an Ebitda of ₹243 crore in Q2FY25, from a loss of Rs 1,145 crore. While the Netherlands operations remain profitable, profitability has been affected by a higher carbon tax. Tata Steel has submitted a proposal to the Dutch government for support.

The positive aspects

On the bright side, domestic demand is expected to improve in the second half of FY25 with increased government spending and construction activity. In addition, domestic expansion projects remain on track. It has commissioned its blast furnace at Kalinganagar and expects it to reach full capacity by the fourth quarter.

The company expects to produce an additional 1.1 million tonnes from the facility during FY25, rising to 3.5-4 million tonnes per annum in FY26 and 5 million tonnes per annum by FY20 27. Mtpa is millions of tons per year.

The blast furnace, along with a number of downstream facilities, the last of which was commissioned by June, would significantly increase the share of value-added grades in its portfolio. Management has indicated that the cost of production at this location would be lower by approx ₹3,000-4,000 per tonne due to lower power consumption and reduced overheads.

However, the mood is dire at present. In the financial year so far, Tata Steel shares have fallen 8%, underperforming the benchmark Nifty50 index. Investor sentiment is weighed down by losses in the UK as a recovery is expected.

“Expectations for a break-even point in UK operations in Q3FY25 have been pushed back to Q1FY26 now. Additionally, an earnings recovery at the Netherlands operation has also been pushed into FY26. In India, lower steel prices in Q3FY25 will further weigh on Ebitda/tonne,” Nuvama Research warned in a report from November 7. The brokerage cut its FY25 and FY26 EBITDA estimates by 30% and 7%, respectively, to account for lower steel. higher prices and losses in Europe.

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