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Tata Steel Ltd Neutral
TISC.BO, TATA IN
FPO announced (6% dilution); Q3 commentary on
prices and volumes in line with estimates; Corus
guided down for Q3
• Volumes across divisions in line with estimates: TATA, for the first
time, gave consolidated volume details for the quarter, pre results. India
sales at 1.637MT (+3% y/y, -1% q/q) are in line with our estimates of
1.64. India crude steel production at 1.75MT was marginally ahead of
our estimates of 1.7MT. Europe steel sales (Corus) at 3.5MT (+8% y/y, -
1% q/q) were marginally higher than JPM estimate of 3.4MT. South
East Asia sales volumes at 0.776MT (-14% y/y, -2% q/q) are in line with
our estimates.
• Pricing trends details also hold no surprises: The press release
highlights that pricing environment in India was mixed with flat product
prices lower q/q, while some long products were up q/q (in line with our
estimates, please see our Metals earnings preview dated 7th Jan, 2011 for
more details). There was no commentary on pricing trends in Europe for
the Dec quarter.
on profitability: The press release, in our view, is guiding down to
European profitability in the Dec quarter saying ‘the improvements in
the financial performance of the first half of FY11 could not be
maintained as higher raw material prices and reduced apparent
demand due to seasonal slow down, amongst other factors, adversely
affected margins at TATA Steel's European Operations'. While Dec is
expected to be a weak quarter for the European operation, we
believe investors would want to see EBITDA/MT positive results for
Corus. We expect Dec-10 EBITDA/MT at $29/MT v/s $56/MT in the
Sept quarter. JPM Consolidated EBITDA estimate for TATA is
Rs32.8bn (-11% q/q) and PAT at Rs20bn (-45% q/q). We expect a sharp
recovery in the March quarter in both India and Europe as the company
benefits from steel price increases of Jan/Feb but the cost pressure would
flow through in the June/Sept quarter.
• Update on fund raising: TATA also announced a Further Public Issue
(FPO) of 57mn new shares (6% equity dilution on current JPM estimated
fully diluted share count of 974mn shares). The pricing band is yet to
be decided. At current price of Rs646, it would imply Rs37bn
($818mn) of new equity issuance. However, the dates of issuance
have not yet been finalized and hence the price would be decided
closer to issue date. TATA had taken approval to raise up to Rs70bn
($1.5bn) in new equity. Given that the current equity issuance is just
above half of the approved limit, we are not very clear as to whether
the company would consider another round of equity raising at a
later date. As of now the current issue is a plain vanilla equity issue and
not DVR.
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