Tata Steel Ltd. share price target

ICICI Securities Ltd | Retail Equity Research Tata Steel reported muted Q2FY18 numbers. Tata Steel Europe's EBITDA/tonne came in lower than our estimates on account of lower realisations while the EBITDA/tonne of Indian operations came in lower on account of higher than expected operating costs The Indian operations reported sales volume of 3.1 million tonnes (MT) while European operations steel sales came in at 2.6 MT. The consolidated operating revenues came in at | 32464.1 crore (up 23.1%...

Tata Steel reported consolidated EBITDA of INR47.2bn in-line with JMfe. While Indian operations reported an EBITDA in line with estimates, European operations delivered an EBITDA of USD45/ton vs. JMFe of USD73/ton, driven by higher RM costs and lower spreads. Tata's Indian operations have now fully ramped up, with its 3mt green-field steel plant at Kalinganagar operating at close to full utilisation levels. A barrage of duties put in place by the Government has ensured a floor price for imports, limiting any downside to Indian operations profitability. We expect continued focus on the EU turnaround plans for much of the current fiscal year. We factor in Indian operations EBITDA/ton of INR11.3/11.5k for...

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