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Tata Steel (TISC.BO)
Buy Equity Research
The worst may be behind, well poised for recovery; retain Buy
What's changed
Key takeaways from Tata Steel’s 3QFY12 results conference call: (1) Group
steel deliveries at 5.84mnt (-5% qoq), were impacted by seasonal weakness
and market uncertainties in Europe and floods in Thailand. (2) Europe
business witnessed price declines on weak demand while higher priced raw
materials impacted profitability, resulting in the company making significant
mark-to-market provisions on stock. However, this implies that with steel
prices recovering, there is low risk of further inventory write-downs.
European demand has picked up with prices inching up. The company is
targeting to retain FY13E volumes in Europe at FY12E levels, despite
planned temporary closure of the BF4 at Port Talbot for rebuild. (3) India
business saw stable prices with long product and downstream prices higher
than previous quarters. Margins were compressed on account of higher raw
material (imported coking coal) prices. (4) The company expects to
commission the Jamshedpur brownfield expansion by March 2012 and
expects to add 1mn tons to current production levels in FY13. (5) European
restructuring measures are progressing per plan, leading to about 2500
redundancies. (6) The Benga coking coal project in Mozambique is expected
to commence despatches from March 2012.
Implications
We cut our FY12E-14E EPS by -1% to -11% on inventory write-down, and
higher cost assumptions. But we believe the worst may be behind in both
India and European profitability, and with the Jamshedpur expansion on track,
the company is well positioned for a strong earnings recovery in FY13E.
Valuation
We reiterate our Buy rating and lower our 12-month P/B-based TP to Rs550
(from Rs552) on lower earnings estimates.
Key risks
Slower-than-expected demand recovery in Europe, higher-than-expected
raw material costs.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel (TISC.BO)
Buy Equity Research
The worst may be behind, well poised for recovery; retain Buy
What's changed
Key takeaways from Tata Steel’s 3QFY12 results conference call: (1) Group
steel deliveries at 5.84mnt (-5% qoq), were impacted by seasonal weakness
and market uncertainties in Europe and floods in Thailand. (2) Europe
business witnessed price declines on weak demand while higher priced raw
materials impacted profitability, resulting in the company making significant
mark-to-market provisions on stock. However, this implies that with steel
prices recovering, there is low risk of further inventory write-downs.
European demand has picked up with prices inching up. The company is
targeting to retain FY13E volumes in Europe at FY12E levels, despite
planned temporary closure of the BF4 at Port Talbot for rebuild. (3) India
business saw stable prices with long product and downstream prices higher
than previous quarters. Margins were compressed on account of higher raw
material (imported coking coal) prices. (4) The company expects to
commission the Jamshedpur brownfield expansion by March 2012 and
expects to add 1mn tons to current production levels in FY13. (5) European
restructuring measures are progressing per plan, leading to about 2500
redundancies. (6) The Benga coking coal project in Mozambique is expected
to commence despatches from March 2012.
Implications
We cut our FY12E-14E EPS by -1% to -11% on inventory write-down, and
higher cost assumptions. But we believe the worst may be behind in both
India and European profitability, and with the Jamshedpur expansion on track,
the company is well positioned for a strong earnings recovery in FY13E.
Valuation
We reiterate our Buy rating and lower our 12-month P/B-based TP to Rs550
(from Rs552) on lower earnings estimates.
Key risks
Slower-than-expected demand recovery in Europe, higher-than-expected
raw material costs.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Buy List
Coverage View: Neutral
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