Sell Tata Steel: Way2Wealth

Way2Wealth is bearish on Tata Steel and has recommended sell rating on the stock in its November 20, 2012 research report.

“Tata Steel, sales volume grew by 9% q-o-q at 1.73mnt for the quarter. Weak demand growth dragged down steel prices which has reduced average realization for the quarter was by 6% at Rs52885/t. Production volume for the quarter increased to 1.87mnt during the quarter. Standalone EBITDA/t has gone down from $315/t in Q1FY13 to $292/t mainly due to reduced realization, increased coke purchases and increased power and freight cost during the quarter. Commissioning of coke oven battery in December 2012 will reduce coke purchases going forward. Depreciation increased because the firm has been capitalizing progressively during this year new brownfield project at Jamshedpur and other expenses increased due to higher MTM mark ups on forward covers, increase in the technical consultancy fees, increased level of maintenance in our current operations. PAT during the quarter remained stable q-o-q at Rs1351cr.”

“During Q2FY13 domestic steel prices have corrected by 8-12%. This will put pressure on margin for the coming quarter. Overall demand growth outlook in the country has deteriorated. This poses threat to domestic steel prices. Reducing raw material prices will ease cost pressure upto some extent. Commissioning of 2.9mnt coke oven battery will reduce purchases of coke from Q4FY13. However, we expect profitability of Indian operations to remain under pressure for the medium term. The firm has guided Jamshedpur plant to add volume of 1mnt during FY13. International scenario also remains challenging and demand outlook is deteriorating. The rebuild of Port Talbot furnace is under progress. However, we expect profitability for European operations to remain under pressure due to weak macro environment. Net debt increased from $9.1bn in March 2012 to $10.4bn now. The company spent close to $1bn on capex in H1FY13 $600mn in India, $190mn in Europe."

"We expect Tata Steel to post sales of Rs116,916cr for FY13e and PAT of Rs1773cr during the year. We expect firm to post EPS Rs22 for FY13E. At current market price the stock is trading at 17xFY13e earnings. We maintain “SELL”,” says Way2Wealth research report.  

Institutional holding more than 40% in Indian cos

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