Buy Tata Steel; target Rs 378: Angel Broking

Angel Broking's research report on Tata Steel

Tata Steel's Indian operations posted a net sales growth of 13.6 percent yoy to Rs 10,771cr, mainly due to increase in volumes, partially offset by decline in realizations. Its EBITDA grew by 10.4 percent yoy to Rs 3,304cr whereas the EBITDA margin slipped 88bp yoy due to rising costs. However higher other income and lower interest cost led to company's standalone adjusted PAT increasing by 27.7 percent yoy to Rs 1,993cr.

The Company posted a marginal 1.9 percent yoy growth in net sales to Rs 34,650cr. TSE's volumes declined by 3.7 percent yoy to 3.4mn tonne. However, it reported an EBITDA/tonne of USD 33 compared to USD 8 in 4QFY2012 due to better cost control efforts at the European operations. The company wrote off Rs 8,356cr of non cash goodwill in the form of impairment of assets at the European business and this led to the company reporting a net loss of Rs 6,529cr. However, adjusting for the exceptional item the adjusted PAT grew by 104 percent yoy to Rs 884cr (above our expectation of Rs 505cr).

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Outlook and valuation: We maintain our positive stance on Tata Steel owing to its buoyant business outlook, driven by a) higher sales volume in FY2014-15 on the back of 2.9mn tonne brownfield expansion project in Jamshedpur, b) raw-material projects at Mozambique and Canada and c) restructuring initiatives at TSE. We maintain our Buy rating on the stock with a revised SOTP target price of Rs 378," says Angel Broking research report.

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