Higher inventories and capex took a toll on Tata Steel: Dipen Shah

In a chat with ET Now, Dipen Shah, Sr. VP-Private Client Group Research, Kotak Securities, shares his views on Tata Steel. Excerpts:

ET Now: What explains the downtick of a good 4 per cent in Tata Steel yesterday even though their European business has done well and it has been an impressive $43 per tonne EBITDA per tonne that they have clocked?

Dipen Shah: Tata Steel gave a mixed set of numbers, while the results were largely in line for us, it was the debt or the increase in the debt by about Rs 6000 crores on a quarter on quarter basis which impacted the stock price and that is what created concerns.

As far as the debt is concerned, we have got two issues there. One is the debt increase largely because of the working capital increase. The company maintained the production despite this being a seasonally weak quarter and that led to higher inventories which the company hopes to clear in the current quarter because the guidance in Europe is significantly better.

On the other hand, they have spent additionally on capex. In Orissa, they have spent about close to Rs 7000 crores during the quarter. So we believe there was a bunching up of capex during the quarter because over the next three to four quarters, the guidance is about Rs 9000 crores of capex towards that plant.

So in this quarter, it was kind of bunching up of inventories as well as of capex because of which we saw that the debt levels increased and that impacted the stock price despite results being decent but we believe that the debt levels are probably at their highest levels, and we will probably see some moderation going ahead.