Tata Steel Ltd. share price target

We recently visited Tata Steel's India manufacturing units. We return positive given company's aggressive capacity expansion plans in India. Tata Steel plans to double its crude steel capacity to 26 mnt by 2022 (through both organic and inorganic expansion).

Joint venture to deleverage its balance sheet Recently, Tata Steel has entered into an agreement with German steelmaker Thyssenkrupp AG (TK) to merge its European steel operations (TSE) by forming a joint venture company Thyssenkrupp Tata Steel to be based in Amsterdam, Netherlands. This joint venture will place the said company as the 2nd largest pan-European flat steel player. The merger is expected to provide synergy benefits to the tune of 400-600m p.a. on a steady state basis through integration of commercial & administration functions, procurement & logistics, R&D; spends, among others. Further this will aid in deleveraging the balance sheet as the company's debt of EUR2.5b will be...

Tata Steel and ThyssenKrupp AG have signed MOU to form 50:50 joint venture of their European operations. Tata Steel expects commencement of JV by March 2019, post clearance of various regulatory approvals.

View: Significant derisking event for Tata Steel, which has long struggled with its European operations. With lowering of external debt, it can explore both organic and inorganic opportunities domestically. We remain positive. Tata Steel Europe (TSE) and thyssenkrupp Steel Europe (TKA-SE) will merge their assets into a 50:50 JV. The resultant entity will be the 2nd largest European steelmaker with vertically integrated operations in Port Talbot (UK), Ijmuiden (Netherlands) and Duisburg (Germany), driving significant consolidation. Synergies of EUR 400-600mn are expected by FY20, driven mainly from the optimization of duplicate functions like admin, sales, and procurement, in addition to efficiencies in logistics and bundling of R&D; functions.

Initiate coverage with a BUY (TP Rs 687, at 7.0/6.0x EV/e for India/Europe operations). Tata Steel delivered strong numbers (consolidated EBITDA/APAT 53.4%/4.7x YoY), as both Indian and European operations delivered healthy EBITDA/t of Rs 10,786 and USD 80, respectively. Reported profits were boosted owing to FX gains (Rs 5.4bn) in the subsidiaries.

Tata Steels Q1FY18 consolidated EBITDA at Rs 50 bn (up 53% YoY) was higher than our and consensus estimates largely due to higher profitability at its downstream subsidiaries and forex translation gains.

Revenue decreased by 12.08% to Rs. 29386.76 Cr in Q1FY18 when compared to the previous quarter Revenue decreased by 12.08% to Rs. 29386.76 Cr in Q1FY18 when compared to the previous quarter

Tata Steel reported a good set of Q1FY18 numbers wherein the consolidated topline and EBITDA were above our estimates Tata Steel's sales volume from the Indian operations came in at 2.8 million tonnes (MT) while European operations (TSE) reported steel sales of 2.4 MT, both in line with our estimates. The gross consolidated topline was at | 30973 crore. After adjusting for excise duty, net operating income (consolidated) was at | 29556.8 crore, up 17.2% YoY, higher than our estimate of | 28189 crore...

Revenue increased by 21.77% to Rs. 15218.46 Cr in Q4FY17 when compared to the previous quarter.