Buy Tata Steel; target of Rs 400: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com's report on Tata Steel

Indian operations posted steel sales volumes of 2.4 MT (our estimate: 2.3 MT) whereas European operations reported steel sales volumes of 3.8 MT (our estimate: 3.6 MT). On a consolidated basis, total steel sales volumes for the group stood at 7.1 MT, higher than our estimate of 6.9 MT

The company reported a consolidated net income from operations of Rs 33666.2 crore broadly in line with our estimate of Rs 33664.2 crore

The consolidated reported EBITDA came in at Rs 1543.0 crore, notably lower than our estimate of Rs 2916.1 crore. Translation loss to the tune of Rs 600 crore due to currency movements, especially EUR/GBP depreciation, led to a sharp miss on consolidated EBITDA. Power outage at Ijmuiden and provision for doubtful advances in China led to additional costs of Rs 290 crore

Reported EBITDA/tonne for Indian operations came in at Rs 6972/tonne, lower than our estimate of Rs 9000/tonne. The EBITDA/tonne for European operations came in at US$44/tonne, marginally higher than our expectation of US$40/tonne. Indian operations for the quarter were impacted by muted realisation and higher raw material (iron ore) costs

The consequent reported consolidated loss came in at Rs 5674.3 crore while the adjusted consolidated loss came in at Rs 863.1 crore. During Q4FY15, the company recognised as impairment to the tune of Rs 4950 crore primarily relating to the long product division at Tata Steel Europe, which adversely impacted the bottomline

"Tata Steel’s Indian operations posted a subdued Q4FY15 performance on the back of a disruption in captive iron ore supply and muted realisations. Tata Steel’s major iron ore mines have restarted. Subsequently, we expect the performance of domestic operations to improve, going forward. From H2FY16, we expect the Indian operations to be self-sufficient for its iron ore requirements. For domestic operations, for FY16E we have modelled sales volume of 9.5 MT and EBITDA/tonne of Rs 10000/tonne while for FY17E we have modelled sales volume of 10.5 MT and EBITDA/tonne of Rs 11000/tonne. The European business has reported operational efficiencies in the last few quarters. Thus, we have upward revised our EBITDA/tonne estimates for European operations wherein we have modelled an EBITDA/tonne of US$50/tonne for FY16E and US$60/tonne for FY17E. We have valued the domestic operations at 6.5x FY17E EV/EBITDA and European operations at 5x FY17E EV/EBITDA. We have arrived at a target price of Rs 400 and assigned a BUY recommendation to the stock", says ICICIdirect.com research report.

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