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TATA delivered a strong earnings beat at the operating level both in India and
overseas entities. Net debt has decreased to $9.1bn since the asset sales. The
recent sell-down on European worries provides a good entry point (4.1x FY13E
EV/EBITDA), in our view, as the market seems to be missing the 40% India
business model, where earnings strength is driven by iron ore pricing strength.
1Q FY12 results highlights why TATA is NOT a European steel company:
India EBITDA/MT at $434/MT and Corus at $78/MT were comfortably ahead
of our estimates of $403/MT and $70/MT, respectively. As a result,
consolidated EBITDA stood at Rs44bn vs JPMe of Rs40bn and BBRG
consensus of Rs39.3bn. Reported PAT of Rs53.5bn included a Rs38bn one-time
gain from asset sales and, excluding these, we calculate recurring PAT stood at
Rs14bn, broadly in line with our estimate. While costs should sequentially
move up in India (higher coking coal from the June quarter contracts), long
product prices remains strong, while FLAT product prices are likely to inch up
from here. We see no risks to our Rs123bn FY12E India EBITDA (70% of
FY12E JPM Consolidated EBITDA). On India coking coal costs, given that
PCI coal prices have come off sharply, and the presence of carryover volumes
from last year, we expect a q/q increase in the range of $30-45/MT.
Europe - Volume missed, but higher ASP helped earnings; Sept-11 likely to
be a weak quarter: Corus missed volume estimates with a 15% q/q decline in
volumes but higher ASP (+10% q/q), translating into EBITDA/MT. Sept should
be a weak quarter and we expect a sharp decline EBITDA/MT before recovering
in Dec.
Net Debt came down to $9.1bn; TATA expects March-12E in ‘similar
range’: Given the recent asset sales, net debt came down to $9.1bn from
$10.5bn in March-11. TATA indicated that it expects net debt in a similar range
in March-12E, even as TATA indicated capex of $2.2-2.5bn, implying strong
India cash generation.
Sharp sell down on European worries overdone in our view; remain OW:
TATA has corrected in line with MT/X, given TATA’s European exposure. In
our view, the India business outlook remains resilient, given where spot iron ore
prices are, and TATA India’s EBITDA/MT should remain comfortably above
$350/MT in FY12E. Key risks include a sharp decline in spot iron ore prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TATA delivered a strong earnings beat at the operating level both in India and
overseas entities. Net debt has decreased to $9.1bn since the asset sales. The
recent sell-down on European worries provides a good entry point (4.1x FY13E
EV/EBITDA), in our view, as the market seems to be missing the 40% India
business model, where earnings strength is driven by iron ore pricing strength.
1Q FY12 results highlights why TATA is NOT a European steel company:
India EBITDA/MT at $434/MT and Corus at $78/MT were comfortably ahead
of our estimates of $403/MT and $70/MT, respectively. As a result,
consolidated EBITDA stood at Rs44bn vs JPMe of Rs40bn and BBRG
consensus of Rs39.3bn. Reported PAT of Rs53.5bn included a Rs38bn one-time
gain from asset sales and, excluding these, we calculate recurring PAT stood at
Rs14bn, broadly in line with our estimate. While costs should sequentially
move up in India (higher coking coal from the June quarter contracts), long
product prices remains strong, while FLAT product prices are likely to inch up
from here. We see no risks to our Rs123bn FY12E India EBITDA (70% of
FY12E JPM Consolidated EBITDA). On India coking coal costs, given that
PCI coal prices have come off sharply, and the presence of carryover volumes
from last year, we expect a q/q increase in the range of $30-45/MT.
Europe - Volume missed, but higher ASP helped earnings; Sept-11 likely to
be a weak quarter: Corus missed volume estimates with a 15% q/q decline in
volumes but higher ASP (+10% q/q), translating into EBITDA/MT. Sept should
be a weak quarter and we expect a sharp decline EBITDA/MT before recovering
in Dec.
Net Debt came down to $9.1bn; TATA expects March-12E in ‘similar
range’: Given the recent asset sales, net debt came down to $9.1bn from
$10.5bn in March-11. TATA indicated that it expects net debt in a similar range
in March-12E, even as TATA indicated capex of $2.2-2.5bn, implying strong
India cash generation.
Sharp sell down on European worries overdone in our view; remain OW:
TATA has corrected in line with MT/X, given TATA’s European exposure. In
our view, the India business outlook remains resilient, given where spot iron ore
prices are, and TATA India’s EBITDA/MT should remain comfortably above
$350/MT in FY12E. Key risks include a sharp decline in spot iron ore prices.
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