Prabhudas Lilladher's research report on Tata Steel
Tata Steel (TATA) reported Q1FY19 earnings above our estimates on the back of beat in TATA Steel Europe (TSE) earnings. Adjusted for one-off charge of Rs1.25bn for rates and taxes in domestic operations and non-cash forex translation loss of Rs5.5bn in South East Asia (SEA) financing arms, EBITDA rose 10% QoQ/44%YoY to Rs71.4bn (PLe:Rs69.5bn). Domestic operations reported 10% QoQ/62% rise in Adj. EBITDA/t to Rs17,500/t (PLe:Rs17,500/t). TSE delivered EBITDA/t of US$100/t (PLe:US$70) due to better availability of Hot strip mill and expansion in spreads.
Outlook
However, the structural restructuring of Chinese mill’s operating model (with profitability being the top priority), strong fundamentals of domestic market and ample growth options would drive steady return and payback on these acquired assets. We reiterate BUY with TP of Rs770, EV/EBITDA 6x FY20E.
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