ICICI Direct recommended hold rating on Tata Steel with a target price of Rs 475 in its research report dated May 13, 2019.
ICICI Direct's research report on Tata Steel
Tata Steel has announced that in all likelihood, the European Commission (EC) does not intend to clear the proposed joint venture (JV) between Tata Steel and ThyssenKrupp. The EC had recently discussed the proposed joint venture between both parties. Based on the feedback received from the commission, Tata Steel believes it is being increasingly clear that EC does not intend to clear the proposed JV as it (EC) expects substantial remedies in the form of sale of assets of the proposed venture. Both parties (i.e. Tata Steel, ThyssenKrupp) are unable to offer further remedies to the commission to meet its requirement. Tata Steel had indicated the required divestments to address the EC’s concerns would considerably dilute the intended synergies of the proposed merger. Hence, both parties have assumed that the EC will not approve the potential JV. Hence, the potential JV is off the table as of now. The official communication from the EC is expected before June 17, 2019 deadline.
While Tata Steel is further evaluating other options for the European entity, we await further developments in this regard. We value the stock on an SoTP basis and arrive at a target price of Rs 475. We downgrade the stock to HOLD recommendation.
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