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Q2 Result Analysis: Tata Steel Net Profit Soars 660% YoY

TATA STEEL q2 results

Tata Steel, the steel giant, saw incredible growth this quarter in terms of profits, Q2FY22. In the second quarter, the steelmaker saw its revenue grow by ~62% YoY and ~13% QoQ. The revenue growth eventually resulted in a whopping ~660% growth over a year. In the current quarter, Q2FY22, the company scored a net profit of Rs 11,918.1 crore against Rs 1,565.4 crores last year, the same quarter. The company’s profits grew by ~33% over the previous quarter.

Source: Company Website

What Drove The Quarterly Results?

In the previous marketfeed articles, we have discussed the steel market in COVID-19 times. We have addressed the industry’s stress globally, China’s involvement, and how the sector recovered post-pandemic. To know more, you can read: 

Global Steel Prices Volatility, China-Australia Trade War and Indian Metal Market: Analysis

Reasons Behind the Rise in Steel Prices in India

Steel Prices Surge in India; is China Hoarding Global Steel?

To sum it up, steel plants were operating below capacity, China, the largest steel supplier, had disrupted global supply citing environmental concerns. Post-pandemic, the supply picked up, at least in India, yet, the prices remained high globally. Indian steelmakers took advantage and gained higher margins on exports. 

The current quarter saw high vaccination rates, normalised trade, and healthy steel prices in the international steel market. Like other steel companies, Tata Steel managed to gain higher realisations in the domestic market. In the global market, Tata Steel managed to play on better price realisations and increased volumes. However, lesser ‘deliveries’ in Europe impacted the profit numbers

For Tata Steel, production increased by 2% on QoQ and 4% on a YoY basis despite planned maintenance shutdowns. Steel sales volume increased by 4% QoQ base with best-ever quarterly sales of Rolled Products.

Currently, Tata Steel is working on offsetting its debt. The company’s debt stood at Rs 88,501 crore in the quarter ended March 2021. The debt was reduced by 11.2% to Rs 78,163 crore in the current quarter. The company plans to reduce gross debt by nearly Rs 14,000 crores in FY22 while prioritising off-shore debt repayment.

The company saw its operating expenses increase by 41% YoY and 17% QoQ. The expenses increased primarily due to an increase in the purchase of  Iron ore and coal consumption cost across its key entities and also higher purchase of Finished & Semi-finished goods.

In other news, the shortage of semiconductors in the automobile has hit the demand. The problem is likely to persist in the short term. Once the problem is mitigated, one can expect a healthy steel sales volume in the automobile sector.  

The company’s investor presentation states its future goals. The company plans to offset a huge amount of debt and aim for strong earnings and improved cash flow performance. It intends to focus on capital allocation, cashflow, and working capital management. Moreover, the company plans to spend Rs 10,000- Rs 12,000 crore as capital expenditure. 

Recovering markets have paved the way for greater demand for steel and lowered material costs. India steel demand is expected to improve, supported by govt’s push for infrastructure spending and consumer demand with the onset of the festive season. One can expect demand improvement across segments and high coking coal prices. Coking coal is a very critical raw material in manufacturing steel. 

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Titan Company Limited, The New Hot Stock

Titan Company Limited, a subsidiary of the Tata Group, has been in the news for the past few days. It is this very company that helped ace investor Rakesh Jhunjhunwala make Rs 900 crore in a single day. In this piece, we dive down into what makes Titan so unique.

Why Is It In The News?

On October 7, 2021, Titan’s shares prices rocketed in a matter of minutes from the time the market opened. The company’s share price rallied 10% in a day. On the same day, ace investor Rakesh Jhunjhunwala earned Rs 1,125 crore in total from two of Tata’s firms. One being Titan, the other one being Tata Motors Ltd. The sudden spurt came in light of Titan Company’s announcement of solid growth in Q2 FY22, suggesting a strong recovery in demand. The company has not officially announced its results for the quarter yet. 

Titan’s update mentions that its Jewellery business grew by 78% over a year’s time. Its jewelry business brand, Caratlane, walked on the same lines and grew by 95% over a year. Additionally, the revenue for its Watches & Wearables business grew by 73%, EyeWear business by 74%, and other business by a staggering 121% over a year. Its other businesses include its flagship saree company, Taneira, and its perfume and accessories brand SKINN.

Source: Titan Official Website

Titan Engineering and Automation Limited (TEAL) had a subdued quarterly performance due to delays in execution and shipments. This was primarily caused by semiconductor shortages and logistics & travel restrictions, which are expected to ease in the second half of the financial year.

Where Does Titan Stand In The Future?

In the post-COVID-19 bull run, many stocks beat the benchmark NIFTY 50 index in terms of growth, and Titan wasn’t one of them. The company gained exceptional traction after it announced its last quarterly results. As we head into the festive season and recover from the financial setbacks of the COVID-19 pandemic, demand for jewellery and luxury goods has pumped. While Q2 isn’t exactly the season for jewellery sales, most shops were not operational in the previous quarter (Q1 FY22) and last year as well. This led to a massive ‘pent-up’ demand. Pent-up demand is a sudden increase in demand for a particular product after a brief period of subdued spending. Another example of pent-up demand is the increase in flight and hotel booking as a part of ‘revenge travel’, as travel restrictions were lifted gradually across the country. 

Titan’s share price has appreciated ~88% over a year, ~50% over the last six months, and ~36% over the last quarter. Titan’s market cap crossed Rs 2 lakh crore after the 10% rally, making it the only Tata Group company after Tata Consultancy Services (TCS) to do so. 

A close look at the 5-year chart of Titan Company suggests that the company has provided consistent returns for value investors. The share price hasn’t witnessed much volatility for quite some time.

If you are thinking of investing in Titan, then you need to keep a few things in mind. While the official quarterly financial results for Q2 FY22 haven’t been announced, the stock might face a strong correction if it fails to run on the lines of the current company update. Despite a certainty of strong Q2 results, any ‘unpleasant’ aspect of the quarterly result might impact the share price. Secondly, while the company has witnessed a very strong financial growth in the last five years, the stock seems best suited for value investors than traders due to its low volatility and consistent returns.  

What are your views on Titan Company Ltd? Let us know in the comments section of the marketfeed app.

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Renewable Energy Sector In India To Fly After Budget 2021?

India has installed a renewable energy capacity of close to 136 GW as of February 2021. It has an installed solar energy capacity of 36.91 GW and a wind energy capacity of 38.43 GW. Additionally, India has installed a strong hydro-power capacity of 45 GW. The government plans to install 500 GW of renewable energy capacity by 2030. The Budget 2021 is a game-changer for the renewable energy sector. 

The Electricity Amendment Bill that has received praise in the public domain can also prove to be a much-needed change for the power generation, transmission and distribution companies. Let’s explore what the renewable energy sector has in its books for investors. 

Current Scenario/Budget 2021 Impact

The solar and wind energy sectors aren’t having the best time. Poor tariffs, bad government regulation, and high payment default rates are what the sector is facing. According to a 2019 report, power distribution companies owed renewable energy companies Rs 6,800 crores in payment dues. Delays in payment by State Electricity Regulatory Commissions(SERCs) make it difficult for renewable energy companies to set up new projects. 

The pricing of renewable energy by government bodies isn’t a transparent process and has its own set of challenges. Financial institutions do not have much understanding or expertise in renewable energy projects. Moreover, the taxation of renewable energy still falls under the grey area.  

In the Budget Session of 2021, the Finance Minister announced reforms in the power and the renewable energy sector. These reforms will ensure improvement in infrastructure financing, clearing payment dues, and improving energy efficiency. The government will be infusing Rs 2,600 crores into the solar power sector through loans, incentives, and subsidies. It will also jack up import duty on solar panels to promote domestic production. 

The government has also announced reforms that will improve the financial position of transmission and distribution companies. This will ensure that the amount of money owed to renewable power generation companies is paid.  

Stocks To Watch Out For

Adani Green

Adani Green is a renewable energy company owned and operated by the Adani Group, headquartered in Ahmedabad, Gujarat. It has a project portfolio of 14,000 GW/Gigawatts. It means that if all of his projects become operational they will generate 14 GW of electricity, which can realistically power up to 42 lakh homes. Adani Green’s projects include solar energy, wind energy, and hybrid solar-wind energy projects. Adani Green has a market capitalization of Rs 1.75 lakh crore. The company’s share price has risen by 1,207% in one year’s time.

To Know More, Click Here.

NHPC 

National Hydroelectric Power Corporation was set up in 1975 with the objective of setting up hydropower projects. It has a market cap of Rs 25514 crore It has a total installed capacity of 7071.2 MW. It has executed 22 hydro projects with an installed capacity of 6717 MW on an ownership basis plus some on a joint venture basis. The company holds projects majorly in the states of Himachal Pradesh, Uttarakhand, and Jammu, and Kashmir to name a few.

Sterling & Wilson Solar

Sterling & Wilson Solar is a Shapoorji-Pallonji Group company that works in end-to-end solar solutions, procurement, construction, operation, and maintenance of solar units. The company has a market cap of Rs 1975 crore. The Engineering, Procurement, and Construction (EPC) business contributed to 96.7% of company revenue in FY 19-20. Operation And Maintenance (O&M) contributed to 3.3% of the revenue in the same year.

The Company’s unexecuted orders stood at Rs 11,396 crore as of March 31, 2020, up 47.3%, from Rs 7,739 crore as of March 31, 2019. This is a minor cause of worry, even though they are getting new orders every other week.

JSW Energy

JSW Energy currently generates 4,559 MW, out of which 3158 MW is thermal power,1391 MW is hydropower, and 10 MW solar power. Close to ~34% of JSW’s portfolio is in renewable energy. JSW Solar bagged an order from Solar Energy Corporation of India for setting up of 2500 MW ISTS or Interstate Transmission System. 

Tata Power

Apart from thermal power production, Tata Power’s renewable business capacity is 2,637 MW (932 MW Wind & 1705 MW Solar). Close to 36% of its total energy is produces from renewables. The company also has an installed hydropower capacity of 693 MW, of which 65% is generated for the domestic market. The company plans to expand its renewable energy capacity base from 4.1 GW to 15 GW by 2025

Other Listed Companies

  • Waa Solar
  • Suzlon
  • Gita Renewables
  • Ujaas Energy and much more..

FM Nirmala Sitharaman announced in the budget 2021 that provisions were being laid for power consumers to choose between multiple power distribution companies. This will promote healthy competition and at the same time, help for better price discovery.

The renewable energy sector shares were struggling for much of its time in the stock exchanges. This is the reason behind poor valuations and price growth of renewable energy companies since IPO, often getting classified as ‘penny stocks’ or ‘operator-driven stocks’.

Factors like the Electricity Amendment Bill, power sector reforms, increased power trading on the Indian Energy Exchange, Renewable Purchase Obligation (RPO), and so on, will spark a movement in the renewable energy sector. 

These changes in the power sector will ensure an increase in cash flows for these companies.  Struggling distribution companies may be able to pay their dues on time, this way reducing the financial burden on the entire sector. A defined tax-structure for electricity too can help power companies transfer tax-burden to their clients. 

There are plenty of small-cap or “penny-stock” renewable companies listed on NSE and BSE, some of these infant companies might turn out to be power giants in the future if they manage to clear off their very high debts. Do you know any? Let us know in the comment section down below!

However, in our opinion, try to go for good companies like the ones we have mentioned above even if their valuations are higher. High debt levels and poor technology may limit these penny stocks from making a comeback, while good companies will flourish.