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What’s the theme?
We expect Tata Steel's EBITDA to grow at 42% CAGR over FY10-12, driven by: 1) Higher profitability of
integrated Indian operations; 2) Turnaround at Tata Steel Europe (TSE), led by improved capacity utilization,
sale of TCP and leaner cost structure; and 3) Improved capital structure post FPO. We expect Tata Steel's
consolidated net profit to be Rs60.7bn in FY11 and Rs64.0bn in FY12. Growth triggers include: 1) Improving
share of highly profitable Indian operations with completion of 2.9mntpa brownfield expansion at Jamshedpur
in FY12; and 2) partial raw material integration for TSE on commencement of mining at Riversdale and
New Millennium. We believe the stock is attractively valued at 4.7x FY12E EV/EBITDA.
What will move the stock?
1) Brownfield expansion of 2.9mntpa at Jamshedpur - this would increase the share of profitable Indian
operations (FY11E EBITDA/t of USD382 vs. USD141 at the consolidated level); 2) Improved capital structure
with manageable financial leverage (1.2x pre-FPO vs. 1.0x post-FPO); 3) better outlook provided by
global steel majors; 4) progress on raw material integration in TSE; and 5) increased stake in Riversdale
to 27.1%, for which Rio Tinto has raised bid-price for takeover.
Where are we stacked versus consensus?
Our consolidated estimates are slightly lower vs. consensus. We value Tata Steel using SOTP methodology
at Rs817.
What will challenge our target price?
1) Weak recovery in Europe - this could lead to TSE not being able to pass on increase in raw material
cost, resulting in EBITDA losses; 2) Delay in brownfield expansion; and 3) Delay in commencing mining at
Riversdale/New Millennium.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s the theme?
We expect Tata Steel's EBITDA to grow at 42% CAGR over FY10-12, driven by: 1) Higher profitability of
integrated Indian operations; 2) Turnaround at Tata Steel Europe (TSE), led by improved capacity utilization,
sale of TCP and leaner cost structure; and 3) Improved capital structure post FPO. We expect Tata Steel's
consolidated net profit to be Rs60.7bn in FY11 and Rs64.0bn in FY12. Growth triggers include: 1) Improving
share of highly profitable Indian operations with completion of 2.9mntpa brownfield expansion at Jamshedpur
in FY12; and 2) partial raw material integration for TSE on commencement of mining at Riversdale and
New Millennium. We believe the stock is attractively valued at 4.7x FY12E EV/EBITDA.
What will move the stock?
1) Brownfield expansion of 2.9mntpa at Jamshedpur - this would increase the share of profitable Indian
operations (FY11E EBITDA/t of USD382 vs. USD141 at the consolidated level); 2) Improved capital structure
with manageable financial leverage (1.2x pre-FPO vs. 1.0x post-FPO); 3) better outlook provided by
global steel majors; 4) progress on raw material integration in TSE; and 5) increased stake in Riversdale
to 27.1%, for which Rio Tinto has raised bid-price for takeover.
Where are we stacked versus consensus?
Our consolidated estimates are slightly lower vs. consensus. We value Tata Steel using SOTP methodology
at Rs817.
What will challenge our target price?
1) Weak recovery in Europe - this could lead to TSE not being able to pass on increase in raw material
cost, resulting in EBITDA losses; 2) Delay in brownfield expansion; and 3) Delay in commencing mining at
Riversdale/New Millennium.
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