Sell Tata Steel; target of Rs 244: Motilal Oswal

Motilal Oswal is bearish on Tata Steel and has recommended sell rating on the stock with a target of Rs 244 in its August 14, 2012 research report.

“Tata Steel adj. consolidated PAT increased 83% QoQ to INR8b above est. of INR6b due to lower than expected loss at TSE and other subsidiaries. Reported PAT of INR6b included forex loss of INR1.97b. Actuarial loss of INR14.5b has been adjusted in reserves and surplus. Consolidated EBITDA was in-line at INR36b. TSI (India s/a) EBITDA was 6% lower than estimate at INR30b due to cost inflation, although realization was higher than estimate. Realization (TSI) was up 5% QoQ but volumes were down 10%.”

“EBITDA per ton remained flat due to cost inflation on account of (1) increase in power rate (2) freight and handling cost (3) pension provisioning on account of change in discount rate. Cost inflation is sticky and will put pressure on margins, in view of falling steel prices. TSE (Europe) reported better than expected EBITDA per ton of USD35/t due to higher prices and easing of cost pressure. Operational issues have now been largely resolved. The rebuild of Port Talbot BF is under progress and is on schedule. However, the European steel demand has weakened further and prices are lower. We expect both volumes and prices to be under pressure in 2Q and 3Q for TSE.”

“Indian steel prices have corrected by 10-15% in long product segment and by 8-10% in flat product segment from peak prices in May. This will put pressure on average realization for TSI. We have cut consolidated FY14 EPS by 9% to INR46.4. We maintain bearish stance on steel prices and expect more earnings downgrade over 3-6 months. The stock is trading at FY14E EV/EBITDA of 6.7x. Re-iterate Sell,” says Motilal Oswal research report.

Institutional holding more than 40% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More