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Tata Steel (TATA)
Metals & Mining
Strong growth prospects. Commissioning of 2.9 mtpa brownfield expansion broadly
remains on track even as there are minor delays in one coke oven battery. We believe
that the India performance over the next two years will offset some of the weakness in
Corus. Corus performance will likely surprise negatively in FY2012E and report below
US$50/tonne of EBITDA, on reduced availability of carbon credit and unpredictability of
monetization of the same. We have updated our model for recent annual report and
cut our EBITDA estimates for FY2012E by 6.8%. BUY with a TP of Rs735 (Rs750 earlier)
Expansion plans broadly on track
The 2.9 mtpa expansion plan, including all downstream and ancillary facilities (barring one 0.7
mtpa coke oven plant), is progressing on schedule and is set to come on stream at the end of the
current financial year. Focus on value-added product mix would help address concerns on
overcapacity in the domestic market. We model 1.7 mn tonnes on sales from brownfield
expansion in FY2013E and 2.7 mn tonnes in FY2014E.
Firm iron ore prices (delays in commissioning of global capacities and likely further supply-related
challenges from India) will benefit Tata Steel. Tata Steel India with 100% integration on iron ore
and 45% on coking coal in the domestic market benefits from strong raw material prices. We
expect EBITDA to be strong at US$401/tonne and US$370/tonne in FY2012-13E for the domestic
market.
Corus FY2012E EBITDA/tonne likely to be below US$50/tonne
Corus FY2012E performance is likely to be a drag on FY2012E consolidated performance. The
profitability of European operations would continued to be impacted, affected by the ongoing
macro concerns in Europe, potential carbon tax laws in UK and elevated raw material prices
globally. The company generated EBITDA of around US$200 mn via sale of carbon credits, i.e.
around 20% of total EBITDA generated in FY2011. In addition to decline in quantum of carbon
credit after sale of TCP, we are unsure about the monetization strategy of credits in FY2012E due
to volatility in prices. As a result, we cut our FY2012E EBITDA estimate by 16.8% to US$613 mn.
Cut estimates but maintain BUY rating with revised TP of Rs735 (Rs750 earlier)
We cut FY2012E and FY2013E EBITDA estimates by 6.8% and 0.6%, respectively. Cut is due to a
combination of Corus and moderation in above-consensus volume estimates for domestic
business. We cut our FY2012E recurring EPS estimate by 5.6% and broadly maintain our FY2013E
EPS estimate. Tata Steel trades at 5.1X FY2012E and 4.5X FY2013E adjusted EBITDA, attractive in
our view. Maintain our BUY rating with a revised TP of Rs735 (Rs750 earlier). We reduce our target
multiple to build in potential risks from implementation of mining tax.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel (TATA)
Metals & Mining
Strong growth prospects. Commissioning of 2.9 mtpa brownfield expansion broadly
remains on track even as there are minor delays in one coke oven battery. We believe
that the India performance over the next two years will offset some of the weakness in
Corus. Corus performance will likely surprise negatively in FY2012E and report below
US$50/tonne of EBITDA, on reduced availability of carbon credit and unpredictability of
monetization of the same. We have updated our model for recent annual report and
cut our EBITDA estimates for FY2012E by 6.8%. BUY with a TP of Rs735 (Rs750 earlier)
Expansion plans broadly on track
The 2.9 mtpa expansion plan, including all downstream and ancillary facilities (barring one 0.7
mtpa coke oven plant), is progressing on schedule and is set to come on stream at the end of the
current financial year. Focus on value-added product mix would help address concerns on
overcapacity in the domestic market. We model 1.7 mn tonnes on sales from brownfield
expansion in FY2013E and 2.7 mn tonnes in FY2014E.
Firm iron ore prices (delays in commissioning of global capacities and likely further supply-related
challenges from India) will benefit Tata Steel. Tata Steel India with 100% integration on iron ore
and 45% on coking coal in the domestic market benefits from strong raw material prices. We
expect EBITDA to be strong at US$401/tonne and US$370/tonne in FY2012-13E for the domestic
market.
Corus FY2012E EBITDA/tonne likely to be below US$50/tonne
Corus FY2012E performance is likely to be a drag on FY2012E consolidated performance. The
profitability of European operations would continued to be impacted, affected by the ongoing
macro concerns in Europe, potential carbon tax laws in UK and elevated raw material prices
globally. The company generated EBITDA of around US$200 mn via sale of carbon credits, i.e.
around 20% of total EBITDA generated in FY2011. In addition to decline in quantum of carbon
credit after sale of TCP, we are unsure about the monetization strategy of credits in FY2012E due
to volatility in prices. As a result, we cut our FY2012E EBITDA estimate by 16.8% to US$613 mn.
Cut estimates but maintain BUY rating with revised TP of Rs735 (Rs750 earlier)
We cut FY2012E and FY2013E EBITDA estimates by 6.8% and 0.6%, respectively. Cut is due to a
combination of Corus and moderation in above-consensus volume estimates for domestic
business. We cut our FY2012E recurring EPS estimate by 5.6% and broadly maintain our FY2013E
EPS estimate. Tata Steel trades at 5.1X FY2012E and 4.5X FY2013E adjusted EBITDA, attractive in
our view. Maintain our BUY rating with a revised TP of Rs735 (Rs750 earlier). We reduce our target
multiple to build in potential risks from implementation of mining tax.
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