Tata Steel’s 1QFY17 consol. EBITDA at INR32.4b (in-line) was up 47% QoQ on higher product spreads in Europe and higher steel prices in India. Long product Europe (LPE) was sold off resulting in ~INR33b write-off primarily relating to working capital. Adj. PAT at INR3.4b (9% miss) was down 44% YoY on lower other income.

Earnings cut on shrinking spreads; Downgrade to sell: Margins of TSI will come under pressure from sharply rising coking coal prices, as there is limited headroom to increase steel prices, in our view. TSE has benefitted from exit of LPE and GBP depreciation, but shrinking spreads will cap upside. We are cutting cons. EBITDA estimates by 13% for FY18E and target price by 18% to INR241/share based on SOTP. Downgrade to sell.