Sell Tata Steel; target of Rs 301: Edelweiss

Edelweiss's research report on Tata SteelTata Steel’s (Tata) domestic operations are expected to remain stable due to government’s protectionist policies. However, domestic prices are unlikely to increase much from current level. On the international front, we believe restructuring/divestiture of Tata Steel UK operations will be challenging at replacement cost as evidenced by the sale of UK Longs business to Greybull Capital. We believe the company will realise up to INR200bn at best from sale of assets, resulting in value accretion of ~INR153/share. Nonetheless, we believe this is already priced in. We downgrade to ‘REDUCE’ with TP of INR301 (earlier INR228). We have trimmed our domestic realisation assumptions for FY17 and FY18 1.3% and 2.4%, respectively, due to limited upside in steel prices. We value domestic operations at INR437/share (earlier INR518). Proceeds from divestiture of UK operations even at INR200bn will result in value swing of international operations to INR(137)/share from INR(290). Hence, we do not see any upside from CMP. Ergo, we downgrade to ‘REDUCE/SU’ from ‘HOLD/SP’ with TP of INR301. 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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