Accumulate Tata Steel; target of Rs 451: Emkay
Emkay Global Financial Services is bullish on Tata Steel and has recommended accumulate rating on the stock with a target of Rs 451 in its May 21, 2012 research report.
Emkay Global Financial Services is bullish on Tata Steel and has recommended accumulate rating on the stock with a target of Rs 451 in its May 21, 2012 research report.
“Tata Steel India (TSI) continued to perform well in Q4FY12 also. Sales volume as reported earlier at 1.77 mt was aided by higher steel realizations of Rs 49100, up 4% QoQ. Deliveries across different product segments - from long to flat to ferro alloys to tubes, all rose on YoY basis for FY12. Operating performance remained broadly in line with revenue at Rs 94.8 bn, up 13% QoQ. Despite employee costs, on QoQ basis rose by ~Rs2.5 bn to Rs 9.4 bn due to provision for wage revision, EBITDA at Rs 29.9 bn grew by 14% on QoQ. EBITDA/ tonne on the other hand stood at US$332 exactly matching our estimates. Bottomline on QoQ rose by 10% as slightly higher fixed costs restricted similar growth as in EBITDA. Depreciation is likely to be higher going forward. Commissioning of the 2.9 mtpa brownfield expansion in Jamshedpur has started and is likely to be completed fully with the commissioning of the coke oven battery during November, 2012. The management expects an incremental 1 mt sales volume in FY13 from the domestic facilities. We prefer to remain a bit conservative on this.” “Concerns on European operations continue with the uncertainty in European economic and political scenario that are likely to impact overall demand. Tata Steel Europe also has been undergoing many restructuring operations and as a part of this the Port Talbot BF- 4 would remain shut down for ~4 months starting June. Sales volume should not be impacted however, as the company would buy slabs to feed its downstream facilities. Falling coking coal prices in such a situation seems to be a big respite for the operating performance. Our volume estimates for Tata Steel Europe stand at 13.8 mt and 14 mt for FY13 and FY14 respectively.” “Though earnings volatility should be expected in FY13 too, we believe, things should start getting better in FY14 with higher volume contribution from the domestic business and improvement in European operations. At the CMP of Rs 400, the stock trades at 7.1xFY14 EPS and 5.4xFY14 EV/ EBITDA and at these valuations, it seems to have priced in most of the European uncertainties. We roll our valuation base to FY14 and continue to value the Indian operations at 6x and European and other subsidiaries at 4x EV/ EBITDA. We upgrade the stock to Accumulate with a target price of Rs 451/ share,” says Emkay Global Financial Services research report. Institutional holding more than 40% in Indian cos 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.To read the full report click on the attachment 
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