Tata Steel shares fall 5% on dismal results; brokerages see more challenges ahead

Shares of Tata Steel lost heavily in early trades Thursday, tumbling over 5 percent, after the company posted huge losses in its fourth quarter earnings that was announced after the market hours a day before. At 10.56 am, Tata Steel shares were down 5.13 percent at Rs 342 on the BSE. Over 4.5 lakh shares changed hands as against two week average volumes of 7.31 lakh shares. [caption id=“attachment_2255804” align=“alignleft” width=“380”]  Reuters[/caption] Tata Steel reported a huge loss of Rs 5,674.29 crore during the quarter ended March compared with Rs 1,035.87 crore profit it recorded in the corresponding quarter last year. The company’s sales declined 21% year-on-year to Rs 33,336.81 crore, as weak demand, falling steel prices and a huge write off on the UK’s long products business weighed on the earnings. Since the beginning of this calendar year, the company’s stock has fallen nearly 17 percent, underperforming the sector benchmark index BSE metal index, which declined 10 percent during the period. Post the disappointing earnings, several domestic brokerage houses have downgraded the Tata Steel stock. Brokerage firm Emkay has reduced the company’s stock target to Rs 310 from Rs 361. Similarly, Prabhudas Lilladher has cut the target price to Rs 325 from Rs 361, citing sluggish outlook on iron ore and underlying weakness in steel sector.

Higher start-up costs and any delay in ramping up of iron ore mining would have further adverse impact on the estimates, says Emkay, adding that Europe seems to be more stable but worries are in the domestic business.

“We see further challenges ahead, as the company is yet to use 1.5 mt high cost iron ore and domestic prices fell further by Rs 1000- 1500/ tonne. We have further reduced our estimates on standalone business factoring in drop in steel prices and higher iron ore costs,” said Emkay.