Tata Steel shares declined by 2.5 percent on Monday and the steel major is currently trading near its 52-week lows. Tata Steel reported quarterly numbers after market close today and the results are better than market expectations. The company reported lower profit but markets were expecting worse performance from steel major. We can expect strong performance for the stock during the upcoming trading session.

Tata Steel, India’s second-largest steel producer, exceeded analysts' expectations by reporting a consolidated profit of Rs. 295 crore for the October-December quarter, despite a significant 43% year-on-year decline. The company faced pressure from cheaper steel imports from markets like China, Vietnam, and South Korea, which impacted realizations across its key regions, including India, the UK, and the Netherlands. Tata Steel also outperformed revenue forecasts, posting Rs. 53,648 crore in consolidated revenue, though it represented a 3% decline year-on-year. Notably, delivery volumes in India rose 8% year-on-year, bolstered by strong domestic demand and strategic export initiatives.

Quarterly Profit and Revenue Performance

Profit Declines but Beats Estimates

Tata Steel reported a consolidated profit of Rs. 295 crore for Q3 FY24, surpassing analyst expectations.
This marks a 43% decline compared to the same period last year, largely due to lower steel realizations.
Revenue Outpaces Forecasts

The company posted revenue of Rs. 53,648 crore, exceeding the Street estimate of Rs. 52,846 crore.
However, revenue declined by 3% year-on-year, reflecting the impact of flat or falling steel prices during the quarter.

Pressure from Global Steel Imports

Impact of Cheaper Imports

Tata Steel, like its peers in the global steel industry, faced pricing pressures due to cheap steel imports from China, Vietnam, and South Korea.
These imports significantly affected steel realizations across Tata Steel’s markets in India, the UK, and the Netherlands.
Market Dynamics

The global steel market has been grappling with oversupply, exacerbated by Chinese exports flooding international markets. This has created pricing pressures for domestic and international players alike.

Production and Sales Highlights

India Operations See Robust Growth

Tata Steel’s India operations reported delivery volumes of 5.29 million tonnes in Q3 FY24, marking an 8% increase year-on-year and a 4% rise quarter-on-quarter.
The growth was attributed to steady domestic demand and a strategic focus on exports.
Performance in Europe

In the Netherlands, sales volumes also rose, supported by robust demand in downstream operations.
The UK operations saw stable demand due to supply to downstream facilities, despite ongoing challenges in European markets.

Challenges in the Steel Industry

Global Steel Prices Remain Under Pressure

Steel prices remained largely flat or on a declining trend during the quarter, affecting revenue growth.
The oversupply from low-cost producers like China continues to disrupt pricing power for steelmakers globally.
Energy and Raw Material Costs

Rising energy and raw material costs have further pressured margins for steelmakers, including Tata Steel.
The company has been proactive in optimizing operations to mitigate these challenges.

Strategic Initiatives and Market Outlook

Focus on Domestic and Export Markets

Tata Steel emphasized its strategic presence in export markets, leveraging demand from international buyers to offset domestic headwinds.
Domestic demand in India remained strong, driven by infrastructure projects and industrial activity.
Operational Optimizations

The company’s focus on cost efficiency and operational improvements has helped it navigate a challenging environment.
Tata Steel continues to diversify its product portfolio to target high-margin segments.

Technical Analysis

Candlestick Patterns

A doji candlestick pattern was recently observed on the daily chart, signaling potential indecision among investors. This could indicate an impending breakout or reversal, depending on market conditions.
Fibonacci Levels

Fibonacci retracement analysis reveals the following key levels:
23.6% retracement: Rs. 134.50
38.2% retracement: Rs. 139.20
50% retracement: Rs. 144.00
61.8% retracement: Rs. 148.80
These levels provide potential entry and exit points for short-term traders.

Support and Resistance Levels

Immediate Support: Rs. 125, a critical level where buying interest has consistently emerged.
Key Resistance: Rs. 135, followed by Rs. 140, where selling pressure is likely to intensify.

Actionable Insights for Investors

Long-Term Investment Case

Tata Steel remains a compelling long-term play due to its strong domestic demand, robust financials, and strategic global operations.
Investors with a long-term horizon can capitalize on the company’s efforts to reduce debt and focus on high-margin, value-added products.
Risks to Consider

Rising input costs, particularly coal and iron ore, may pressure margins.
Global economic uncertainties and geopolitical tensions could impact demand and pricing in key markets.

Bottomline for Traders

Tata Steel can take support from current levels and can touch Rs 132 in upcoming sessions. If we see a breakout above Rs 136, we can expect further rally in the stock.