Reduce Tata Steel; target Rs 396: Dolat Capital
Dolat Capital has recommended reduce rating on Tata Steel (TSI) with a target price of Rs 396 in its February 14, 2013 research report.
February 15, 2013 / 13:29 IST
Dolat Capital has recommended reduce rating on Tata Steel (TSI) with a target price of Rs 396 in its February 14, 2013 research report.
"TSI reported a 6.3%QoQ (Rs 3000 per tonne) drop in blended steel realisations to Rs 49578 (DCe: Rs 49477) on back of 6.6%drop in flat product realizations and 8% drop in long product realizations. EBITDA/mt which fell by 8.1%QoQ/18.1%YoY to Rs 13366 or USD 240 as against our estimate of Rs 14302/mt primariliy. Higher than estimated depreciation at Rs 4.33bn (DCe: Rs 4.01bn), interest cost of Rs 5.09bn (DCe:Rs 4.65bn ) and lower other income of Rs 357mn (DCe: Rs 1.9bn) led to further deviation in profitability. TSI PAT declined by 26.4%YoY/8.2%QoQ to Rs 10.46bn (DCe: Es 14.19bn) due to lower operating profitability.Tata Steel Europe (TSE) hit by one time restructuring loss of USD 35mn.: TSE reported weak volumes of 3.02mn tonne (DCe:3.3mn tonne) in challenging environment, with realizations falling by 9.1%QoQ to USD 978 per tonne. EBITDA per tonne at loss of USD 26/mt was in contrast of our est of USD -13 per tonne as it got impacted by expense of USD 46 mn (USD 11mn NRV loss, and USD 35mn restructuring expenses at its distribution entities). Adjusted for one time expenses TSE reported an EBITDA loss of USD 15 per tonne. TSE will face increase in production cost due to implementation of EU emission trading norm although the impact on TSE in FY14 and FY15 will be minimal due to it being carbon surplus due to low production.Tata Steel South East Asia EBITDA at USD 26mn (DCe:USD11mn) was higher due to better profitability in Natsteel in China and Australia and lower losses in Tata Steel Thailand. Tata Steel reported a net loss of Rs 7.63 bn( DCe:loss of Rs 2.6bn) as lower consolidated EBITDA of Rs 22.38 bn (DCe: 25.46 bn) and higher interest and depreciation exacerbated the loss.Tata Steel expects the performance to be better in Q4FY13 given the higher volumes in TSI and pricing uptick in TSE. However we believe Tata Steel performance would be under pressure given the high leverage, continued pressure in European operations, and subdued demand in the Indian steel market. We continue to maintain our Reduce rating on the stock with the target price of Rs 396 (6x FY14 EV/EBITDA, 5x for rest of the operations)," says Dolat Capital research report.Bodies Corporate holding more than 50% 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 
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