>TATA STEEL LIMITED (MOTILAL OSWAL)

■ Higher than estimated loss for 2QFY10: Tata Steel's consolidated adjusted loss after tax for 2QFY10 declined by Rs1.8b on a sequential basis to Rs18b. We had estimated an adjusted loss of Rs8.7b for the quarter. The reported loss of Rs27.2b includes Rs9b of restructuring costs on account of employee severance and others.

■ Shipments increased 14% QoQ but realizations declined: Net Sales increased 9% QoQ to Rs254b as deliveries increased 14% QoQ to 6.2m tons. Average realization dropped 5% QoQ, dragged by Corus, despite the general trend of price increases in the spot market. Price decline was sharper for Corus. Average realization for Corus' products declined 9% QoQ to US$820/ton for flats and 22% QoQ to US$675/ton for longs. Corus' crude steel production increased 43% QoQ to 4m tons but deliveries were lower at 3.9m tons (v/s 3.3m tons in 1Q). As a result, inventories increased by 0.2m tons to 2.7m tons. Inventories have increased for Indian operations too, from 0.55m to 0.63m tons.

■ Corus' EBITDA loss of Rs18b hits again: Cons.EBITDA turned around from loss of Rs299m in 1QFY10 to Rs3.7b in 2QFY10. Corus' EBITDA loss was 3% lower at Rs18b. Losses on account of Teesside plant increased by US$120m QoQ to US$170m due to lower prices of slabs. The benefit of volume growth was fully negated by lower prices.

■ Turnaround ahead on lower coking coal costs; maintain Neutral: Lower prices (despite higher volumes) and impact from Teesside plant led to an EBITDA loss of Rs18b for Corus. While profitability is likely to improve from 3QFY10, the first half losses would result in Tata Steel reporting a loss for the year. We expect a loss of Rs28/share in FY10 and EPS of Rs50 in FY11. We maintain our Neutral recommendation.

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