Tata Steel - 2QFY2016 Result Update - Angel Broking

Raw Material purchases impact EBITDA: Tata Steel's standalone revenues for 2QFY2016 declined 12% yoy to Rs. 9,531cr (7% ahead of our estimate of Rs. 8,879cr), led by better than expected volumes and pricing. However, increased raw material expenses on account of external purchases of iron ore resulted in the EBITDA declining sharply by 40% yoy to Rs. 1,862cr, 3% below our expectation of Rs. 1,918cr. The adjusted net profit nearly doubled to Rs. 3,844cr led by a sharp jump in other income on account of gains from sale of quoted investments of Rs. 3,505cr, while interest expenses were lower on account of debt repayments in 1QFY2015.

Overseas operations remain under pressure: The EBITDA of the European operations turned negative, led by a steep decline in realisations and on account of lower volumes. Tata Steel Europe (TSE)'s sales volumes declined 3% yoy to 3.27MT, 7% below our expectation of 3.53MT. Realisation declined 20% yoy to $798/tonne, but 10% ahead of our estimate of $723/tonne. SEA volumes continued to remain under pressure, with deliveries declining 27% yoy to 0.69MT.

Outlook and valuation: Given the weak outlook on steel prices and with the European business already in the red at the operating level, we expect tough times to continue for the stock. The stock is currently trading at an EV/EBITDA of 6.8x FY2017E EBITDA. We retain our Neutral rating on the stock.

Shares of TATA STEEL LTD. was last trading in BSE at Rs.220.1 as compared to the previous close of Rs. 225.6. The total number of shares traded during the day was 1862829 in over 19246 trades.

The stock hit an intraday high of Rs. 221.6 and intraday low of 215.25. The net turnover during the day was Rs. 407183613.

Source : Equity Bulls

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