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India Equity Research Reports, IPO and Stock News
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Better Times Still Far Away
Following significant underperformance of companies in the ferrous sector
to the tune of 23% in the past six months compared to the Sensex, we
remain negative on the sector. Although steel companies may benefit
because of lower raw material prices, particularly coking coal, the rupee
depreciation has offset entire gains. Steel prices may not rise significantly
because of correction in international markets and deteriorating economic
conditions in India and in fact are likely to quote at a discount to global
prices. We continue to retain our Sell rating on the sector.
JSW Steel: We have cut our FY13 EBITDA and PAT estimates by 10% and 25%,
respectively, driven largely by higher costs because of substantially weaker
rupee-US dollar assumption at Rs54/$ for FY13 and losses at Ispat Industries. We
continue to retain our Sell rating on the stock with a revised target price of
Rs500 (down 8% from our earlier TP of Rs545). We have marginally lowered
our FY12 volume assumption by 1.2%, but we have kept our volume assumption
constant for FY13. We have increased our target multiple from 3.5x to 4.0x FY13
EV/EVITDA considering the time series. Our revised TP is 12% below the CMP.
NMDC: We continue to retain our Sell rating on NMDC with a revised TP of
Rs154 (down 31% from our earlier TP of Rs222). We have cut our EBITDA
estimates by 1% and 9% for FY12 and FY13, respectively. PAT estimate for FY12
has been revised upwards by 3% due to higher other income, although it has
been revised downwards by 7% for FY13. We have also revised our valuation
multiple assumption from 6.0x to 4.0x in view of deteriorating economic conditions
in India and an overall bear cycle in iron ore. Besides this, we are even assigning
a 25% discount to the CWIP as the deteriorating environment for commodities will
lower the returns from projects. We are also assigning a 10% discount to the cash
surplus as we remain cautious about fund utilisation in the wake of the new
disinvestment policy, which entails cross-holding in other state-owned companies.
Our revised TP is 11% below the CMP.
Steel Authority of India: We have cut our FY13 EBITDA and PAT estimates by
1% and 3%, respectively, after factoring in rupee depreciation. We retain our Sell
rating on the stock with a revised TP of Rs76 (down 16% compared to our
earlier TP of Rs90). Our TP cut is steeper that the reduction in earnings, driven
largely by the change in valuation of CWIP. We are now assigning a 20% discount
to CWIP compared to zero discount earlier, as we expect the prolonged economic
slowdown in India to result in higher single-digit RoCE and RoE for new projects.
At an EBITDA of Rs7,000/tonne also, the new projects are likely to generate
RoCE and RoE of 8.3% and 10.6%, respectively. Our revised TP is 10% below
the CMP.
Tata Steel: Tata Steel’s FY13 consolidated EBITDA and PAT estimates have
been cut by 12% and 27%, respectively, because of factors like higher cost of
domestic operations due to rupee depreciation, lower steel prices in Europe
because of demand slowdown and a marginal drop in volumes in Europe as well
as India. We retain our Sell rating on the stock with a revised TP of Rs341
(down 5% from our earlier TP of Rs358). However, we have increased our
target multiple from 3.5x to 4.0x FY13 EV/EBITDA considering the time series.
Our revised TP is 6% below the CMP.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Better Times Still Far Away
Following significant underperformance of companies in the ferrous sector
to the tune of 23% in the past six months compared to the Sensex, we
remain negative on the sector. Although steel companies may benefit
because of lower raw material prices, particularly coking coal, the rupee
depreciation has offset entire gains. Steel prices may not rise significantly
because of correction in international markets and deteriorating economic
conditions in India and in fact are likely to quote at a discount to global
prices. We continue to retain our Sell rating on the sector.
JSW Steel: We have cut our FY13 EBITDA and PAT estimates by 10% and 25%,
respectively, driven largely by higher costs because of substantially weaker
rupee-US dollar assumption at Rs54/$ for FY13 and losses at Ispat Industries. We
continue to retain our Sell rating on the stock with a revised target price of
Rs500 (down 8% from our earlier TP of Rs545). We have marginally lowered
our FY12 volume assumption by 1.2%, but we have kept our volume assumption
constant for FY13. We have increased our target multiple from 3.5x to 4.0x FY13
EV/EVITDA considering the time series. Our revised TP is 12% below the CMP.
NMDC: We continue to retain our Sell rating on NMDC with a revised TP of
Rs154 (down 31% from our earlier TP of Rs222). We have cut our EBITDA
estimates by 1% and 9% for FY12 and FY13, respectively. PAT estimate for FY12
has been revised upwards by 3% due to higher other income, although it has
been revised downwards by 7% for FY13. We have also revised our valuation
multiple assumption from 6.0x to 4.0x in view of deteriorating economic conditions
in India and an overall bear cycle in iron ore. Besides this, we are even assigning
a 25% discount to the CWIP as the deteriorating environment for commodities will
lower the returns from projects. We are also assigning a 10% discount to the cash
surplus as we remain cautious about fund utilisation in the wake of the new
disinvestment policy, which entails cross-holding in other state-owned companies.
Our revised TP is 11% below the CMP.
Steel Authority of India: We have cut our FY13 EBITDA and PAT estimates by
1% and 3%, respectively, after factoring in rupee depreciation. We retain our Sell
rating on the stock with a revised TP of Rs76 (down 16% compared to our
earlier TP of Rs90). Our TP cut is steeper that the reduction in earnings, driven
largely by the change in valuation of CWIP. We are now assigning a 20% discount
to CWIP compared to zero discount earlier, as we expect the prolonged economic
slowdown in India to result in higher single-digit RoCE and RoE for new projects.
At an EBITDA of Rs7,000/tonne also, the new projects are likely to generate
RoCE and RoE of 8.3% and 10.6%, respectively. Our revised TP is 10% below
the CMP.
Tata Steel: Tata Steel’s FY13 consolidated EBITDA and PAT estimates have
been cut by 12% and 27%, respectively, because of factors like higher cost of
domestic operations due to rupee depreciation, lower steel prices in Europe
because of demand slowdown and a marginal drop in volumes in Europe as well
as India. We retain our Sell rating on the stock with a revised TP of Rs341
(down 5% from our earlier TP of Rs358). However, we have increased our
target multiple from 3.5x to 4.0x FY13 EV/EBITDA considering the time series.
Our revised TP is 6% below the CMP.
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