Buy Tata Steel; target of Rs 650: Edelweiss

Edelweiss' research report on Tata Steel

Tata Steel’s Q4FY17 EBITDA at INR70bn (highest since Q2FY09) surpassed consensus owing to strong EBITDA at domestic operations (INR 13,586/t) and turnaround in European operations. Though we estimate quarterly EBITDA run rate over FY18‐19 to improve to INR 40‐50bn (from INR 30‐40bn), Q4FY17 EBITDA number is unlikely in the near term as international steel prices are under pressure.

Outlook

Factoring in Q4FY17 performance, we revise up FY18E/FY19E EBITDA 1%/7%. Maintain ‘BUY’ with revised SoTP based TP of INR 650 (INR 637 earlier), implying an exit multiple of 6.4x FY19E—at a discount to peers’ 7.0x average.