Accumulate Tata Steel; target of Rs 497: Dolat Capital

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Accumulate Tata Steel; target of Rs 497: Dolat Capital

Dolat Capital is bullish on Tata Steel and has recommended accumulate rating on the stock with a target of Rs 497 in its February 10, 2012 research report.

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Dolat Capital is bullish on Tata Steel and has recommended accumulate rating on the stock with a target of Rs 497 in its February 10, 2012 research report.

"Tata Steel (TSE)'s consolidated loss, at Rs 6.03bn (Dolat est: Rs 4.29bn), missed estimates due to inventory writedown of USD144 in Tata Steel Europe (TSE), Tata Steel India (TSI) performance was inline. Performance will improve in Q4FY12 as TSE starts on low cost raw materials along with the better steel prices led by restocking demand. Maintain Accumulate with a price target of Rs 498."

"TSE sales volumes at 3.35mn tonnes were better than estimate of 3.2mn tonnes whereas realisations decreased by USD43 per tonne due to weak pricing. Surprisingly EBITDA per tonne adjusted for inventory writedown only fell to loss of USD 1 per tonne (DCe USD20) despite higher cost and lower realisations. TSE has continued its restructuring efforts to improve its productivity which include shutdown of long product capacities, manpower reduction, shifting of raw material contracts closer to spot prices and better sales mix. TSI sales volumes fell 3.8% QoQ to 1.61mn tones- in line with estimates. EBITDA of Rs 26.7bn, was below estimates at Rs 27.3bn impacted by higher cost of coal by Rs 2.3bn and freight cost. EBITDA per tonne declined by 3.4%QoQ to USD319 per tonne. Steel realisations rose by 3.8%QoQ to Rs 51740 per tonne better than estimate."

"TSI has adopted modified AS-11 leading to a loss of Rs 170mn(DCe Rs 3.2bn) leading to better profits at Rs 14.03bn (DCe:Rs12.86bn). TSI has reduced the volume guidance for FY13 to 7.6 mn tonne (Earlier 8 mn tonne) due to slower ramp up of 2.9 mn tonne expansion. TSI indicated that it has increased prices in both the month of January and February in its products. Consolidated Q3 FY12 EBITDA, at Rs 17.17bn, missed our estimates of Rs 22.41bn due to inventory write down in European and poor performance of South east operations. We believe Tata Steel, will have improvement in margins in FY13E, given the higher share of profitable India operations with the commissioning of 2.9 mtpa expansion, raw material projects (Coking coal in Mozambique and Iron ore in New Millenium), and improved profitability at TSE due to softening in raw material prices. Given the recent price run up, we change our rating from Buy to Accumulate with a target price of Rs 497 based on SOTP," says Dolat Capital research report.     

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To read the full report click on the attachment