Accumulate Tata Steel; target of Rs 470: Dolat Capital

Dolat Capital is bullish on Tata Steel and has recommended accumulate rating on the stock with a target of Rs 470 in its August 14, 2012 research report.

“Tata Steel results were better than our estimate as Tata Steel Europe operating profits improved due to better prices and lower cost. Steel prices have declined sharply over last month and would impact TSE operating profits. But we believe strong volume growth in domestic operations coupled with the commencement of raw material integrations will lead to earnings growth. Tata Steel stock has corrected by 7% over last 1 month on concerns of European slowdown. We believe the negative impact of TSE due to slowdown is in the stock price and maintain our Accumulate rating on the stock with a price target of ` 470.”

“Tata Steel sales volumes at 3.2mn (-8.3%YoY/-9.6%QoQ) tonnes were inline. Realisations rose by USD60 per tonne QoQ to USD1076 (-10.6%YoY/5.1%QoQ) in line with expectations but were surprised at EBITDA per tonne at USD 33 per tonne (Dolat est:USD 17) . TSE continues to face challenges in terms of contraction of demand in Europe but expects the volume to remain flat in FY13 vs FY12. Tata Steel India sales volumes were flat on YoY basis at 1.59mn tonnes and were below our estimate of 1.6mn tonnes. Strong steel realizations at ` 53617 per tonne (4.5%QoQ) negated the impact of higher power cost and leading to EBITDA per tonne at ` 17483 per tonne and were inline with our estimate.”

“Tata Steel is currently trading at 6.4xFY13EV/EBITDA and 5.5xFY14EV/EBITDA. We maintain our positive bias on Tata Steel given the strong volume growth in domestic operations, softening of raw material prices would aid margins in Tata Steel Europe from Q4FY13 and the commencement of its raw material projects. We maintain our Accumulate rating on the stock with a target price of ` 470,” says Dolat Capital research report.

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