Hold Tata Steel; target of Rs 420: R K Global

R K Global has recommended hold rating on Tata Steel with a target of Rs 420 in its November 15, 2012 research report.

“Tata Steel reported losses of Rs4132mn during the Q was better than our expected losses’ of Rs9852mn with the better product mix revenue and the lower operational cost. Total Expenses was below our expectation due to the lower raw material cost. Depreciation cost remains elevated over the capitalization of Greenfield project.”

“Tata Steel consolidated registered revenue growth 4% to Rs341327mn (expected Rs356212mn) in Q2FY’13 compared to Rs327979mn in Q2FY12. The revenue below expectation as the group total deliveries fell by 1% YoY to 6.07MT in Q2FY13 compared to 6.12MT in Q2FY12. Further total expenditure of the company as a percentage of sales grew by 1.9% YoY to Rs318227mn (expected at Rs340178mn) in Q2FY13 compared to Rs299304mn in Q2FY12. This led EBITDA to fell 19% YoY to Rs23100mn (expected Rs16033mn) in Q2FY’13 due to increase in O&M cost as a percentage of sales by 1.72% YoY, Employee cost by 1.16% YoY, finished goods expenses by 0.6% YoY, power & fuel cost ~0.5% and S&D by 0.5%YoY during the Q. Further revenue from other income also fell by 40% YoY to Rs2017mn (expected at Rs4935mn) in Q2FY’13 compared to Rs3361mn in Q2FY’12. This led adjusted Operating profit to fell by ~22% to Rs25118mn during the quarter.”

“At the CMP of Rs375 the stock is trading at EV/EBITDAx of 11x on FY13E EBITDA of Rs161373mn. We value Tata Steel on a sum of the parts basis (SOTP) with the India business valuation unchanged at 5x EV/EBITDA, European (Corus) at 4x EV/EBITDA, S.E Asian business at 4x EV/EBITDA, and other business at 5x EV/EBITDA for normalized FY13E EBITDA. We maintain our earlier target price of Rs420 per share, the stock is offering an upside potential of ~12% from current level. We maintain hold rating on the stock,” says R K Global research report.

Institutional holding more than 40% in Indian cos

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