Emkay Global Financial's report on Tata Steel
Indian business delivered a strong operating performance, with EBITDA of Rs12,187/t. However, we note that the bigger surprise was Europe delivering positive EBITDA of $4/t. We expect the TSE business to report a loss in H1, due to compressing steel spreads. Leverage remains high and absolute net debt is also above the Rs1tn mark. We expect no deleveraging in FY21 and FY22 as the support to Europe and capex in India will ensure high leverage. Only an uptick in the steel cycle will not support deleveraging. Lower capex in FY21 implies that the Kalinganagar–II project is delayed further. We note that the pellet plant at Kalinganagar will also come up after 12-15 months. The second wave of Covid-19 in Europe, China and other parts of the world will impact steel further.
Outlook
We cut our FY21/22E steel deliveries by 12%/9% and EBITDA by 49%/12%. We expect Tata Steel to report a loss in FY21. We roll over valuation to Mar-22 on a SoTP basis and cut the TP to Rs340 (from Rs485). Downgrade to Hold (from Buy), with UW in Sector EAP.
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