Tata Steel shares tank 3% as Q2 profit falls 90%. Here's what analysts say

Shares of Tata Steel fell 3 per cent in Tuesday's trade after the steelmaker said its September quarter consolidated profit plunged 90 per cent to Rs 1,297 crore, hurt by higher expenses. The Tata group firm had reported a profit of Rs 12,547.70 crore in the same quarter last year.

Following the development, the scrip fell 3.34 per cent to hit a low of Rs 98.15 on BSE. With this, the scrip has fallen 13 per cent year-to-date.

Analysts said Tata Steel results were weak, in line with expectations, but cited that the company's net debt rose sharply in the quarter gone by. 

The stock is currently trading at 4.8 times FY23 EV/Ebitda and 1 time price to book value.

"We believe the stock is fully valued given the current steel prices outlook globally. We do not expect any sharp increase in steel prices in the near term while increase in coking coal prices remain a concern for the margins in 4QFY23. We maintain our 'Neutral' rating on Tata Steel with an SoTP-based target of Rs 91," said Motila Oswal Securities.

Anmol Das, Head of Research, Teji Mandi said higher coke prices, especially in Europe operations, dented Tata Steel's margins while declining prices affected the overall realisation per tonne sequentially.

"The upcoming capacities of Tata Steel and other steel makers in India will further intensify the competitive pricing of steel in the domestic market, and steel prices will require more demand for the incremental consumption. The sector may further underperform for the next couple of years till demand grows more stronger along with increase in exports," Das said.

Motilal Oswal said a sharp correction from $366 per tonne to $123 per tonne in a matter of just one quarter could be on account of several reasons including high energy costs and high coal costs.

"We believe while energy costs could continue to remain elevated, demand could take a beating given the recessionary conditions in EU currently. With steel prices correcting continuously in China, we see no reason for upward movement in the European steel prices as well," it said.