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Positive triggers still not in sight, maintain sell
Tata Steel reported consolidated PAT of ~Rs4.3bn (our est. Rs1.8bn) on account of
better than expected operational performance in overseas units and Rs2bn profit
from its associate unit in Philippines. Consolidated EBITDA stood at Rs31.8bn
(margin of 9.4%) as European operations turned EBITDA positive despite lower
realizations but domestic operations remained subdued due to wage provisioning
costs. We expect overall profitability to improve going forward on account of lower
raw material costs and expansion in India but see concerns related to European
operations continuing as further maintenance is announced which would affect
volumes and keep capex requirements high. We revise our estimates lower and
remain well below consensus with our continued negative stance on the European
operations, lower margin profile in domestic operations on reduced backward
integration post expansion and high interest costs on account of the large debt pile
which refuses to come down as annual group capex remains ~US$2.5bn. We
maintain sell with a target price of Rs 393.
Standalone results lower due to wage provisions: Domestic sales volume stood at
~1.76MT and higher wage costs (provisioning of ~Rs2bn done for expected new
wage agreement) resulted in EBITDA margin of 31.9%, a marginal improvement of
only 10bps sequentially despite improvement in realizations and lower raw material
costs. Flat product sales were highest ever at 3.74 MT in FY12 and long product sales
through retail distribution went up by 43% YoY in FY12. The 2.9mtpa steel
expansion has begun phased commissioning with blowing in of the blast furnace.
Corus reports positive EBITDA, but remains in a tight spot: Corus turned EBITDA
positive with an EBITDA/tonne of ~US$8 as raw material costs dropped and
mitigated the impact of 5% QoQ drop in realizations. Restructuring and maintenance
of operations continues at Corus and one of the blast furnaces at Port Talbot has
been taken down for complete rebuilding. South-East Asian subsidiaries improved
their operational performance QoQ and reported EBITDA of ~US$29/tonne on
account of ~10% QoQ increase in sales volumes and lower raw material costs. As a
result of better operational performance in subsidiaries, cons. EBITDA stood at
Rs31.8bn with a margin of 9.4%.
Analysts’ meet highlights: The Company expects 1 MT of sales from 2.9 mtpa
expansion in Jamshedpur which is under trial run. We expect EBITDA margin of
33.2%/33.4% in FY13E/14E on a standalone basis as integration on the coking coal front
would drop post expansion and product mix will get skewed towards flats, keeping
overall realizations in check. European operations continue to see operational
improvements and maintenance and blast furnace rebuild at Port Talbot has been
undertaken recently. The company sees FY13E volumes in line with FY12E but expects
pressure on EBITDA in the wake of lower prices and demand. We expect European
operations to deliver 13.5 MT of sales volume with EBITDA/tonne of US$25 in FY13E.
We revise our consolidated EBITDA estimates lower by 4%/6.4% for FY13E/14E.
Maintain sell: We continue to remain skeptical on subsidiary earnings going forward
and are equally concerned on elevated maintenance capex which is keeping debt
levels high. We value the company on SOTP basis with domestic operations at 5.5x
FY14E EV/EBITDA and Corus & South-east Asian subsidiaries at 4x FY14E EV/EBITDA to
arrive at a target price of Rs393. Maintain sell.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Positive triggers still not in sight, maintain sell
Tata Steel reported consolidated PAT of ~Rs4.3bn (our est. Rs1.8bn) on account of
better than expected operational performance in overseas units and Rs2bn profit
from its associate unit in Philippines. Consolidated EBITDA stood at Rs31.8bn
(margin of 9.4%) as European operations turned EBITDA positive despite lower
realizations but domestic operations remained subdued due to wage provisioning
costs. We expect overall profitability to improve going forward on account of lower
raw material costs and expansion in India but see concerns related to European
operations continuing as further maintenance is announced which would affect
volumes and keep capex requirements high. We revise our estimates lower and
remain well below consensus with our continued negative stance on the European
operations, lower margin profile in domestic operations on reduced backward
integration post expansion and high interest costs on account of the large debt pile
which refuses to come down as annual group capex remains ~US$2.5bn. We
maintain sell with a target price of Rs 393.
Standalone results lower due to wage provisions: Domestic sales volume stood at
~1.76MT and higher wage costs (provisioning of ~Rs2bn done for expected new
wage agreement) resulted in EBITDA margin of 31.9%, a marginal improvement of
only 10bps sequentially despite improvement in realizations and lower raw material
costs. Flat product sales were highest ever at 3.74 MT in FY12 and long product sales
through retail distribution went up by 43% YoY in FY12. The 2.9mtpa steel
expansion has begun phased commissioning with blowing in of the blast furnace.
Corus reports positive EBITDA, but remains in a tight spot: Corus turned EBITDA
positive with an EBITDA/tonne of ~US$8 as raw material costs dropped and
mitigated the impact of 5% QoQ drop in realizations. Restructuring and maintenance
of operations continues at Corus and one of the blast furnaces at Port Talbot has
been taken down for complete rebuilding. South-East Asian subsidiaries improved
their operational performance QoQ and reported EBITDA of ~US$29/tonne on
account of ~10% QoQ increase in sales volumes and lower raw material costs. As a
result of better operational performance in subsidiaries, cons. EBITDA stood at
Rs31.8bn with a margin of 9.4%.
Analysts’ meet highlights: The Company expects 1 MT of sales from 2.9 mtpa
expansion in Jamshedpur which is under trial run. We expect EBITDA margin of
33.2%/33.4% in FY13E/14E on a standalone basis as integration on the coking coal front
would drop post expansion and product mix will get skewed towards flats, keeping
overall realizations in check. European operations continue to see operational
improvements and maintenance and blast furnace rebuild at Port Talbot has been
undertaken recently. The company sees FY13E volumes in line with FY12E but expects
pressure on EBITDA in the wake of lower prices and demand. We expect European
operations to deliver 13.5 MT of sales volume with EBITDA/tonne of US$25 in FY13E.
We revise our consolidated EBITDA estimates lower by 4%/6.4% for FY13E/14E.
Maintain sell: We continue to remain skeptical on subsidiary earnings going forward
and are equally concerned on elevated maintenance capex which is keeping debt
levels high. We value the company on SOTP basis with domestic operations at 5.5x
FY14E EV/EBITDA and Corus & South-east Asian subsidiaries at 4x FY14E EV/EBITDA to
arrive at a target price of Rs393. Maintain sell.
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