Tata Steel :At last - a positive beat across segments on underlying earnings with NO one-time benefits; the worst is behind us: JPMorgan

Tata delivered a strong beat across segments after a long time and it was
essentially driven by higher volumes and lower costs. In our view, the strong
results combined with steel prices likely bottoming out, inexpensive valuations
(stock trades at GFC levels on P/BV) and under ownership should drive an up
move in the stock.

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 Strong operating beat and NO one-time benefits: Across India, Europe,
Southeast Asia there was a strong beat at the EBITDA level. India EBITDA/T
increased q/q to Rs14,500/t with total EBITDA at Rs33bn (vs. Rs29bn JPMe,
consensus at Rs29.7bn) at the standalone entity. This was even as realizations
were flat q/q (on account of weaker product mix). TATA expects additional
volume of +1mt in FY14 from the expansion. Standalone PAT (normalized) at
Rs20bn was sharply ahead of estimates. Europe EBITDA at Rs6bn was ahead
of JPMe driven essentially by higher volumes. Southeast Asia also reported
strong EBITDA. The only weak part was in the South African unit. Consol
EBITDA stood at Rs43.7bn (vs. JPMe Rs34bn; consensus Rs32.5bn) and was
the highest in seven quarters. The impairment charge (pre announced) stood at
Rs83bn. The goodwill impairment was mostly in the long products division of
Tata Europe.
 A clean operating result with no one-time gains associated with the Q4
beat: The company clarified that there are no one-time non recurring gains in
Q4, particularly in Europe. While investors would likely wait for two to three
quarters more to confirm this, in our view, the Q4 results and positive
management body language does indicate that the worst is likely over as: a)
stabilization of India expansion that resulted in lower EBITDA in the previous
three quarters; b) benefits of Europe restructuring. From here, while Europe
steel environment remains challenging, the era of large losses are likely behind
us.
 Strong operating cash flows: FY13 results also highlight the cash flow strength
of the company. TATA spent Rs152bnbn in capex while operating cash flows
stood at Rs133bn. We maintain our view that TATA should be able to
implement its large Odisha expansion program mostly with internal cash flows.
 DPS cut a positive in our view, asset sales - 'No Touch me Not policy': The
DPS cut (Rs8 from Rs12 in FY12) is positive and does highlight the
management’s commitment to conserve cash. On question of asset sales,
management highlighted that portfolio reorganization is an ongoing process.