Re-iterate Buy on Tata Steel - Motilal Oswal

Tata Steel (TATA IN; Mkt Cap USD13.7b, CMP Rs641, Buy)

Tata Steel's 3QFY11 consolidated adjusted PAT declined 33% QoQ to Rs8.8b, lower than our estimate of Rs12.5b.

Tata Steel India's (TSI) EBITDA increased 7% QoQ to Rs28.2b. EBITDA per ton increased 14% QoQ to US$362.

Margin expansion was higher than our estimate due to higher than expected realization (Rs41,274/ton) and slower increase in raw material and staff costs.

Subsidiaries' sales volumes declined 13% QoQ to 3.6m tons, while Tata Steel Europe's (TSE) deliveries declined 2% QoQ tons due to seasonal factors.

Realization for TSE increased 3% QoQ to US$1,153/ton. EBITDA per ton for all the subsidiaries together declined by US$17 to US$37.

The stock is trading at an EV of 5.6x FY12E EBITDA and at 7.7x FY12E EPS. We believe Tata Steel is well placed due to raw material integration and superior product positioning. It is our top pick in the metals space. Re-iterate Buy.

Source : Equity Bulls

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