Hold Tata Steel; target of Rs 405: KRChoksey

KRChoksey has recommended hold rating on Tata Steel (TSL) with a target of Rs 405 in its November 12, 2012 research report.

“Tata Steel reported another weak quarter result in Q2FY13, below our expectations. Top-line grew marginally by 4% y-o-y and 1% on a sequential basis. EBITDA declined significantly on y-o-y basis, due to higher operating expenditure during the quarter. It reported net loss of Rs364cr, attributed to a higher interest expenses and effective tax rate over the same period. Contraction in demand coupled with continuous sluggishness in European activities impacted the overall performance.”

“TSL India produced 1.87 MT in Q2FY13 v/s 1.71 MT in Q2FY12 & 1.74 MT in Q1FY13. Deliveries were 1.73 MT in Q2FY13 V/S 1.65 MT in Q2FY12 & 1.59MT in Q1FY13. Net steel realization increased by 5% y-o-y to Rs48,459/Tonne, led to increase in sales by 12% y-o-y to Rs 9,151cr against Rs 8,142cr in Q2FY12. However, EBITDA declined by 7% y-o-y to Rs2,516cr v/s Rs2,700cr in Q2FY12, due to higher raw material cost & other expenditures.  TSL Europe’s production was 3.34 MT in Q2FY13 v/s 3.53 MT in Q2FY12 & 3.53 MT in Q1FY13. Deliveries were 3.42 MT in Q2FY13 V/S 3.57 MT in Q2FY12 & 3.21 MT in Q1FY13. EBITDA/Tonne declined in negative territory to (USD8/Tonne) v/s USD96/Tonne in Q2FY12. According to management, economic situation to remain under pressure and demand of steel is likely to contract further as Q3 is expected to be weak quarter on the back of current sluggishness as well as weak seasonality.”

“Demand for steel products are likely to witness weakness as the improvement in industrial activities particularly in Europe seems to be lackluster. We believe this will continue for another 1-2 quarters. In addition, declining prices of iron ore as well as coking coal is likely to be reflected in realization prices as well. However, domestic operation will continue to play its role and give backend support to overall performance of the company. We do not anticipate significant improvement in company’s financials in near term and ttherefore; we continue to maintain our hold rating with a target price of Rs 405/Share (on SOTP based), an upside of 5% from current levels,” says KRChoksey research report.

Bodies Corporate holding more than 50% in Indian cos

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