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Tata Steel Ltd (TISC.BO) NEUTRAL N. Mishra
CP: Rs 399.85 TP: Rs 340 CAP: Rs 394.2b 9122 6777 3716
High volumes and premium help revenues, Europe outlook remains negative; Lowering Estimates
Consolidated EBITDA missed by 8% despite better sales prices. Wage costs rose sharply in India as Tata provisioned for
new wage contracts effective 1 January, thereby offsetting the sharp improvement in long products. In Europe, ASP did not
rise as much as expected and production volumes disappointed.
Forex adjustments led to higher finance costs and net income missed by 60%. In FY13, though Tata expects no increase in
debt despite US$2.5 bn in capex, we expect US$1 bn rise. Interest costs should thus rise; new capacity starts have an
impact too.
Tata expects 1H13 in Europe to be weak, with demand anemic, and Port Talbot capacity down for a rebuild without much of
inventory. While 1Q may see better pricing (lagged effect) and profitability, management seemed eager to sound cautious.
Any meaningful structural improvement in profitability looks unlikely in near term. The stock already builds in the substantial
expected improvement in India operations and we stay cautious. We cut our estimates for the year FY12-FY14 by 3%-23%
but target price remains unchanged at Rs340. We await signs of a potential seasonal recovery in the steel cycle in
July/August.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel Ltd (TISC.BO) NEUTRAL N. Mishra
CP: Rs 399.85 TP: Rs 340 CAP: Rs 394.2b 9122 6777 3716
High volumes and premium help revenues, Europe outlook remains negative; Lowering Estimates
Consolidated EBITDA missed by 8% despite better sales prices. Wage costs rose sharply in India as Tata provisioned for
new wage contracts effective 1 January, thereby offsetting the sharp improvement in long products. In Europe, ASP did not
rise as much as expected and production volumes disappointed.
Forex adjustments led to higher finance costs and net income missed by 60%. In FY13, though Tata expects no increase in
debt despite US$2.5 bn in capex, we expect US$1 bn rise. Interest costs should thus rise; new capacity starts have an
impact too.
Tata expects 1H13 in Europe to be weak, with demand anemic, and Port Talbot capacity down for a rebuild without much of
inventory. While 1Q may see better pricing (lagged effect) and profitability, management seemed eager to sound cautious.
Any meaningful structural improvement in profitability looks unlikely in near term. The stock already builds in the substantial
expected improvement in India operations and we stay cautious. We cut our estimates for the year FY12-FY14 by 3%-23%
but target price remains unchanged at Rs340. We await signs of a potential seasonal recovery in the steel cycle in
July/August.
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