Buy Tata Steel; target of Rs 799: Angel Broking

“Tata Steel reported robust profitability during 4QFY2011. Going forward, we expect Tata Steel’s India operations to benefit significantly on account of the firm steel prices; however, TSE would continue to suffer due to higher raw-material prices and subdued demand in Europe. Nevertheless, we continue to maintain our positive stance on Tata Steel owing to its buoyant business outlook mainly driven by higher sales volume in FY2013. We maintain Buy on the stock.”

“Standalone EBITDA/tonne lower due to one-time cost: Despite steel prices being substantially higher qoq, average steel realisations grew by only 12.8% yoy and 8.2% qoq to Rs 44,667/tonne on account of lag effect of annual, semi-annual and quarterly contracts; realisation for 1QFY2012 is expected to be higher qoq. Sales volume for the quarter was flat yoy and increased by 4.3% qoq to 1.71mn tonnes. Thus, standalone net revenue grew by 13.6% yoy and 12.8% qoq to Rs 8,341 crore. During the quarter, there was a one-time cost of Rs 130 crore included in staff cost due to wage provision. As a result, EBITDA/tonne came in lower at USD 396/tonne (up from USD 383 in 3QFY2011). TSE’s EBITDA/tonne higher due to provisions write-back: In Europe, deliveries grew by 5.9% yoy and 19.0% qoq to 4.13mn tonnes and average realisation increased by 22.2% yoy and 3.1% qoq to USD 1,192. EBITDA/tonne for Tata Steel Europe (TSE) came in substantially higher at USD 85 as it included USD 133mn write-back of provisions relating to Teesside plant and fire at Ijmuiden. Adjusting for the same, adjusted EBITDA/tonne stood at USD 53.”

“We expect Tata Steel’s India operations to benefit significantly on account of the firm steel prices; however, TSE would continue to suffer because of higher raw-material prices and subdued demand in Europe. Nevertheless, we continue to maintain our positive stance on Tata Steel owing to its buoyant business outlook, driven by a) higher sales volume in FY2013 on completion of its 2.9mn tonne brownfield expansion project in Jamshedpur, b) raw-material projects at Mozambique and Canada and c) restructuring initiatives at TSE. We maintain our Buy recommendation on the stock with a revised SOTP target price of Rs 799 (earlier Rs 802),” says Angel Broking research report.

Institutional holding more than 40% in Indian cos

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