Sell Tata Steel; target of Rs 305: Maximus Securities

Maximus Securities is bearish on Tata Steel and has recommended sell rating on the stock with a target of Rs 305 in its August 29, 2012 research report.

“Tata Steel Limited formerly TISCO and Tata Iron and Steel Company Limited) established in 1907 is an Indian multinational steel company headquartered in Mumbai, India and subsidiary of Tata Group. It is the tenth-largest steel producing company in the world, with an annual crude steel capacity of 23.5 million tonnes, and the largest private-sector steel company in India measured by domestic production with operations in 26 countries and commercial presence in over 50 countries. Tata Steel has been ranked #401 in the Fortune Global 500 rankings of the world's biggest corporations for the year 2012. In August 2007, Tata Steel won the bid to acquire the UK-based steel maker Corus in what was, to date, the largest international acquisition by an Indian company. It made the Tata Group the world's fifth largest steel maker.”

“In FY 12, company’s top line grew by 13% to Rs 137835 crore on 1% fall in global steel deliveries to 24.22 million tonnes. The fall is attributed to lower off take in Europe and SE Asian steel deliveries though improved demand in India moderated the same. On quarter basis, the consolidated net sales grew by flat 2% to Rs 33,548 crore in June 2012 affected by lower deliveries in Europe and S.E. Asia and flat deliveries in India. The steel deliveries of India fell by 8.7% q-o-q, in Europe by 10% and SE Asia by 1%. Due to which its PBT crashed 78% to Rs. 1416 crore, further PAT fell by 89% at Rs. 597 crore due to high tax provisions, minority interest.”

“Due to fall in Iron ore & steel prices worldwide, the non – integrated steel players are expected to benefit from reduction in raw material prices.   The Forex loss incurred in Indian operations was Rs 205 crore in Q1 FY13 with 65% due to foreign debt and 35% due to raw material costs.   Ferro Alloys and Mineral Division (FAMD), the non-steel business unit of Tata Steel, is planning to add 55,000 tonnes of ferro chrome and silico manganese production capacity each in Gopalpur and Nayagarh of Odisha by 2014). Due to highly volatile global economic scenario coupled with stress in domestic economy, demand outlook for steel remains bleak and we remain bearish on steel prices which eventually would dry up the realizations per tonne. At CMP of Rs. 374, stock is trading at 5.3x EV/EBIDTA & higher financial leverage. We recommend sell on Tata steel with target price of Rs. 305 (7.0x FY13EPS),” says Maximus Securities research report.

Public holding more than 90% in Indian cos

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