Motilal Oswal 's research report on Tata Steel
Tata Steel (TATA) has seen strong recovery in profitability, led by higher steel prices. Consolidated EBITDA rose 60% YoY to INR61.1b in 2QFY21 (the highest in the last six quarters), and we estimate 3QFY21 to be even stronger at INR71.6b (+98% YoY). Furthermore, net debt fell INR83b QoQ to INR988b (the lowest in the last six quarters), led by working capital release of INR103b. The potential divestment of the company’s profitable Netherlands operations to SSAB could lead to further deleveraging. However, its continually loss-making UK operations would remain an overhang on the stock. We raise our FY21/FY22E EBITDA estimates by 38%/9%, factoring in higher steel prices and spreads. Maintain Neutral.
Outlook
At CMP, the stock trades at 6.1x FY22E EV/EBITDA. Maintain Neutral, with TP of INR456/sh based on FY22E EV/EBITDA of 6x for Indian operations and 5x for Europe.
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