Sell Tata Steel; target of Rs 196:Dolat Capital

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26 Aug, 2025 12:21

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Dolat Capital's research report on Tata SteelTata Steel’s (TSL) consolidated results for Q2FY16 were below expectations with net sales declining 18.1% YoY (3% QoQ) to `293bn (better than our expectation of `275bn). The Consolidated EBITDA declined 49% YoY to `18bn, lower than our estimate of Rs23.7bn, as Tata Steel Europe (TSE) reported negative EBIDTA/t of USD12. Consequently, the margin at 6.2% was below our estimate. The standalone revenues increased 4.8% QoQ to `95bn as volumes increased 8.8% partially offset by 3.7% decline in realization. But the EBIDTA increased 10.3% QoQ to Rs 18.6bn (better than our estimate- `15.9bn) mainly due to write back of about `3.7bn on account of provision made earlier for District Mineral Fund(DMF). Tata Steel reported consolidated profit of `15.3bn below our estimate of profit of `19.4bn due to exceptional provision related to impairment of assets . It reported standalone PAT of ` 25.2bn lower than our estimate of `28.6bn due to the provision related to government claimsWe believe that given the high level of uncertainty surrounding European operations, EBIDTA could swing wildly from negative to USD25 in one quarter. We believe that the European operations will remain an albatross for the company with no definite timeframe for it to turn around and contribute to the bottom line. We also believe that the strong British sterling pound in comparison to USD is helping cheap Chinese steel imports in Europe and also making manufacturing in UK quite uncompetitive. This will keep prices under pressure. As a result, we are not going to see strong prices on a sustainable basis, making TSE’s operations a continuing liability and drag on the balance sheet.We believe there is significant downside risk and the stock would underperform the market.For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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