Sell Tata Steel; target of Rs 364: Nirmal Bang

Nirmal Bang is bearish on Tata Steel and has recommended sell rating on the stock with a target of Rs 364 in its August 14, 2012 research report.

“Tata Steel, consolidated EBITDA for 1QFY13 was 7%/5% above our/street estimates, respectively, driven by strong performance of Tata Steel Europe (TSE), which reported EBITDA of US$35/tn versus our estimate of US$19/tn. PAT was 0.4%/13% below our/street estimates, respectively, due to a sharp rise in depreciation in international operations and higher effective tax rate at 63% versus our expected 52%. Standalone EBITDA was 0.2%/5% below our/street estimates, while PAT was 2%/10% below our/street expectations, respectively. PAT was lower than estimates due to the surge in effective tax rate to 36% compared to the expected 31%. Domestic realisation was 4% above our estimate, but costs/tn were also 5% above our estimate (it appears the company booked forex loss in other expenses). Therefore, EBITDA/tn was just 0.4% above our estimate at Rs17,483 (US$329). We will review our recommendation and earnings estimates post the company’s conference call scheduled on 14 August 2012 at 10AM.”

“Tata Steel India reported a 1% lower volume compared to our expectation, but this was offset by 4% higher-than-expected realisation. It reported flat YoY volume, but down 10% QoQ, while realisation was up 14% YoY and 4% QoQ. Costs/tn increased 29% YoY and 5% QoQ, which resulted in a 11% YoY drop and a 3% QoQ rise in EBITDA/tn. EBITDA was down 11%/7% YoY/QoQ, while PAT was down 39%/13%, respectively, for the same period. Despite a 1% lower volume versus our estimate, TSE was able to achieve US$35/tn of EBITDA versus our estimate of US$19/tn due to 2% higher realisation than our expectation. It reported 10% YoY/QoQ drop in volume, each, while realisation was down 12% YoY, but up 4% QoQ. EBITDA/tn was down 55% YoY and EBITDA fell 59% for the same period. On QoQ basis, EBITDA/tn jumped from US$8 to US$35 for the quarter, while EBITDA surged from US$29mn to US$111mn.”

“Tata Steel posted a 3% higher volume from South-East Asian operations versus our estimate, while realisation was 1% below our estimate. It reported EBITDA of US$24/tn as compared to our estimate of US$20/tn. It reported 8%/1% YoY/QoQ drop in volume, respectively, while realisation was down 12%/1% for the same period. EBITDA/tn was down 8%/18% YoY/QoQ, respectively,” says Nirmal Bang research report.

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