Tata Steel Ltd - Management meet update - Emkay

Reco: REDUCE
CMP: Rs 411
Target Price: Rs 349

Challenges persist

We met the Tata Steel management to discuss various issues and developments related to the company's domestic and international operations. The following are the key highlights...

- Jamshedpur 2.9 mtpa brownfield capacity expansion: getting delayed?
- Kalinganagar- Orissa project: work on progress
- European operations: continue to be under stress
- Overall steel scenario wrt domestic and overseas operations- challenging

- At the end of Q1, the gross debt stood at US$11.7 bn and net debt at US$9.7 bn. Though gross debt is likely to remain same, net debt could increase.

Volume and margins likely to be under pressure; Maintain Reduce

We have been reiterating our concerns on the volume growth both in Europe and India as well. We keep our FY13 volume estimates at 7.2 mt and 13 mt for India and Europe respectively. Believe, margins pressure to be visible both for domestic and overseas operations in Q2FY13 results. Higher inventory build- up in the system could pose threat to prices going forward. We estimate 1.72 mt sales and US$292 EBITDA/ tonne for India and 3 mt sales and -US$4 EBITDA/ tonne for Europe for Q2FY13. Keeping our FY14 estimates same, continue to value Indian ops at 6xFY14 and Europe and others 4xFY14 EV/ EBITDA. Maintain Reduce with a TP of Rs 349/ share.

Source : Equity Bulls

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