Buy Tata Steel; target of Rs 635: ICICI Direct

ICICI Direct's research report on Tata Steel

Driven by better-than-expected consolidated sales volumes, Tata Steel’s consolidated adjusted EBITDA came in higher than our estimate. Standalone operations reported sales volume of 3.58 million tonnes (MT), higher than our estimate of 3.2 MT. European operations reported steel sales of 2.57 MT, higher than our estimate of 2.3 MT. The consolidated topline came in at Rs 42423.9 crore. Consolidated adjusted EBITDA came in at ~Rs 7314 crore (our estimate: Rs 6508 crore). Domestic operations reported adjusted EBITDA/tonne of Rs 13619/tonne while European operations reported adjusted EBITDA/tonne of US$67/tonne. Going forward, we model EBITDA/tonne of Rs 14000/tonne for FY20E and Rs 14310/tonne for FY21E. For European operations, we model EBITDA/tonne of US$40/tonne for both FY20E and FY21E.

Outlook

We value the stock on an SoTP basis and arrive at a target price of Rs 635, with a BUY rating on the stock.