Hold Tata Steel; target of Rs 450: ICICI Direct

ICICI Direct's research report on Tata Steel

Tata Steel reported subdued Q1FY21 results wherein consolidated topline came in line with our estimate while consolidated EBITDA was notably lower than our estimate. The EBITDA/tonne of both Indian, European operations came in lower than our estimate. Standalone operations reported sales volume of ~2.1 million tonnes (MT). European operations reported steel sales of 2.0 MT, marginally higher than our estimate of 1.9 MT. Tata Steel BSL reported sales volume of 0.7 MT (higher than our estimate of 0.65 MT). Consolidated topline was at Rs 24289 crore (down 32% YoY, 28% QoQ), largely in line with our estimate of Rs 23010 crore. Consolidated reported EBITDA was at Rs 506 crore while adjusted EBITDA was at Rs 1038 crore (notably lower than our estimate of Rs 1634 crore). For the quarter, the company reported exceptional gain (net) of Rs 58 crore. Subsequently, on a consolidated basis, the company reported a net loss of Rs 4609 crore.

Outlook

Tata Steel reported a muted consolidated performance in Q1FY21. At the consolidated level, ~Rs 2000 crore of costs was under absorbed due to lower volumes and have been charged to the P&L, thereby impacting its operating performance during the quarter. However, going forward, we expect Tata Steel standalone operations’ Q2FY21 performance to improve (from Q1FY21 levels), on the back of higher realisations QoQ, lower coking coal costs and QoQ higher domestic sales volume. We value the stock on SoTP basis and arrive at a target price of Rs 450. We maintain our HOLD rating on the stock.