Tata Steel Ltd. share price target

Steel outlook: Chinese steel price has corrected from USD 500/t to 420/t in last 2 months due to fall in iron ore and spot coking coal prices. Domestic steel prices have also corrected by 3-5% due to weak demand and falling RM prices.

ICICI Securities Ltd | Retail Equity Research Tata Steel's sales volume from Indian operations came in at 3.2 million tonnes (MT), in line with our estimate, while sales volumes from European operations came in at 2.85 MT, lower than our estimate of 3.2 MT. After adjusting for excise duty, net operating income (consolidated) was at | 33896.0 crore, up 30.6% YoY, 21.2% QoQ, lower than our estimate of | 35709.5 crore Consolidated reported EBITDA was at | 7025.2 crore (EBITDA margin...

Q3FY17 consolidated EBITDA of Rs 35 bn was in line with our and consensus estimate. Higher-than-expected margins in India business was offset by lower profitability in the European business. The management attributed lower margins in the European business primarily to higher maintenance expense at N..

Revenue grew by 5.9% to Rs. 27843.92 Cr in Q3FY17 when compared to the previous quarter. Also, it increased by 13.36% when compared with Q3FY16.

ICICI Securities Ltd | Retail Equity Research Tata Steel (TSL) reported a robust set of Q3FY17 numbers. The betterthan-expected performance was primarily driven by healthy domestic realisations, which increased ~| 3500/tonne QoQ Tata Steel's sales volumes from Indian operations came in at 3.0 million tonnes (MT), higher than our estimate of 2.7 MT while sales...

ICICI Securities Ltd | Retail Equity Research Tata Steel UK has reached an agreement with trade unions on a number of proposals that would structurally reduce risks and help secure a more sustainable future for its UK business. The proposal will need employees' approval. As per the agreement, the company, in the near term, will start consultation with its employees on a proposal to close the British Steel Pension Scheme (BSPS) to future accrual. Employees would be offered a competitive defined contribution scheme. The company and trade unions...

ICICI Securities Ltd | Retail Equity Research Tata Steel reported a subdued set of Q2FY17 numbers. The Indian operations reported a muted performance wherein the EBITDA/tonne was lower than our estimate while the EBITDA/tonne from European operations came in higher than our estimates. The topline, PAT and EBITDA were below our estimates Tata Steel's sales volume from the Indian operations came in at 2.6 million tonne (MT) higher than our estimate of 2.4 MT while the sales...

Tata Steel (TSL) reported a mixed set of Q1FY17 numbers. EBITDA/tonne from Indian operations came in lower than our expectation but the EBITDA/tonne from European operations came in exceptionally higher than our estimates. Topline, PAT both came in lower than our estimate while EBITDA broadly came in line with our estimate • Sales volume from Indian operations was at 2.14 million tonnes (MT), lower than our estimate of 2.3 MT while sales volume from European operations was at 2.53 MT (our estimate: 3.0 MT). Consolidated sales volume was at 5.4 MT lower than our estimate of 6.5 MT.

Outlook and valuation : Tata Steel reported a healthy EBITDA performance for Q1FY17 primarily on the back of exceptionally higher EBITDA/tonne reported from European operations. Going forward, we have maintained our assumptions for Indian operations while slightly tweaking the assumptions for European operations. We have valued the domestic operations at 6.5x FY17E EV/EBITDA and overseas operations at 5x FY17E EV/EBITDA. We have arrived at a target price of | 350 and have a HOLD recommendation on the stock.

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.

European business taking up the baton, the story has more scope. Improving European spreadsandongoingrestructuringinthatgeographywillbedriversofhigherprofitability. WhileIndianoperations'profitabilitywillstaysubduedintheneartermduetoseasonally...