Buy Tata Steel; target Rs 380: AnandRathi

AnandRathi research's report on Tata Steel

Tata Steel, India sales volumes as proportion of total sales would increase by 527bps to 37 percent by FY15e, reducing the earnings-volatility impact of the European operations. Capital deployed on high-yielding assets would improve returns despite funding losses of the global operations of ~USD1bn over three years. Tata Steel has the strongest domestic business model in metals, with access to resources and distribution strength. Overseas operations have undergone significant restructuring, impacting balance-sheet ratios and returns. Brand strength, technology access and volume visibility make gthe stock our preferred pick, with the company’s resilience to the slowdown. We reiterate a Buy, with a sum-of-parts price target of Rs 380. At the CMP, the stock trades at 6x FY14e EV/EBITDA. Our sum-of-parts valuation leads to a premium multiple for India, and a discount to the European operations in order to factor in the low-margin operations there. Risks. Better coal production in India, more resource-taxation," says AnandRathi research report. 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.

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