TATASTEEL
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+0.15 (+0.14%)
NSE Volume
212.1L+
Broker Reports
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While volumes and margins would be impacted in FY21 due to weak domestic demand and adverse sales mix, we expect them to recover to normal levels in FY22. Tata Steel Europe, however, is expected to remain a drag on overall profitability with EBITDA loss expected in FY21 and PAT loss in FY22. Despite curtailing growth capex, we expect net-debt/ EBITDA to remain high at 8.1x in FY21 and 4.7x in FY22. Maintain Neutral with a TP of INR328/sh (based on SOTP).
REDUCE
Tata Steel (TATA) reported Q4FY20 EBITDA above our/consensus estimates by 12%/8% at Rs46.5bn (up 48% QoQ/down 38% YoY), led by higher than expected earnings in TATA Steel Europe (TSE). While, Indian operations reported earnings in line with our expectation. Stock moved up ~20% over last couple of months in light of improvement in global prices (up 15% from bottom), low input prices and gradual recovery in domestic demand. However, we expect prices to weaken in H2CY20 due to ease in China’s pent-up demand and sharp increase in Chinese steel production. Weak market outlook, coupled with over-stretched debt levels (Net debt/EBITDA of 5.0x on normalized FY22e earnings) and weak overseas asset portfolio, justifies our negative view on the stock. Hence, we maintain Reduce rating with TP of Rs250 (Earlier Rs240), EV/EBITDA of 6.3x FY22e.
BUY
Tata Steel’s (TSL) Q4FY20 operating performance was marred by COVID19 woes. Key highlights: i) Domestic volume fell 15-19% across business segments, though Tata Steel Europe (TSE) fared better. ii) Inventory build-up evident. and iii) Possible uptick in exports volume (fetching lower realisation) is likely to impact profitability. Going ahead, we expect sustained near-term pressure on volumes and realisations owing to lockdown woes and progressively lower export prices, respectively. Maintain ‘BUY’ with TP of INR335, implying 7.0x June 2021E EBITDA.
REDUCE
Street is excited on the price hikes undertaken over last couple of months, suggesting bottoming of margins. However, the improvement in margins is significantly lower in comparison to consensus expectation. We would avoid to play the theme of bottomed-out margin through TATA due to over- stretched debt levels (Net debt/EBITDA of 5.0x), diminishing mining margins (due to expiry of chrome ore mines) and weak overseas asset portfolio. Impacted by high debt, TATA is compelled to delay its attractive expansion of 5mtpa at Odisha. In the backdrop of lower margins in domestic and European operations, we cut our EBITDA estimates for FY21E by 3%. Driven by structural issues on B/S and weak outlook on steel prices, we reiterate Reduce with TP of Rs350 (earlier Rs400), EV/EBITDA 5.5x FY21e.
BUY
Tata Steel (TSL) reported Q3FY20 operating performance slightly better than our estimates. Key highlights: i) Restocking by dealers led to a volume uptick. ii) We expect exports to stay elevated. iii) At Tata Steel Europe (TSE), sales volume/spreads are expected to stay under pressure. Like its peers, TSL’s spreads for both domestic and overseas operations are likely to bottom out in Q3FY20. Going ahead, we believe a price uptick in both domestic and exports markets would aid margins. Maintain ‘BUY’ with a TP of INR590, implying an exit 5.7x June 2021E EBITDA.
REDUCE
Tata Steel (TATA) reported consolidated EBITDA 21%/11% below ours/consensus estimates due to weak operating performance in European operations and losses in domestic subsidiaries. While, standalone earnings came in-line with our expectation. Due to weak margins in TSE and cut in profitability of TATA Steel BSL Ltd (erstwhile Bhushan steel), we cut our EBITDA estimates for FY20E/FY21E by 1.4%/2.3%. Admittedly, spreads have bottomed-out. However, recovery in spreads would be subdued in the backdrop of weak demand, high uncertainty (due to trade wars) and sizeable overcapacity (both in global and domestic). Incrementally, TATA’s margins would be lower by Rs500-550/t due to expiry of chrome ore mines by Q4FY20. Given the overleveraged B/S (Net debt/EBITDA of 4.5x) and weak earnings outlook, we reiterate Reduce with TP of Rs350, EV/EBITDA 5.6x FY21e.
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Tata Steel Limited has started the process of consolidating India operations. In Europe, the company is implementing a transformation plan which aims to reduceoperating costs, rationalize capex and working capital to increase overall cash flow. The company is expected to benefit from increased government spending and efforts of addressing liquidity crunch. The stock is currently trading at 362 of EV/EBITDA 5.0x of FY21EBITDA. We have valued the stock at 1SD and have arrived at downwardly revised TP of Rs. 489 retaining “BUY” rating on stock with potential upside of 35%. Key risks to valuation are further deepening of trade war and steeper slowdown in domestic economy.
REDUCE
Europe does the damage; De-rating to aggravate
Despite sharp increase in iron ore prices, steel prices softened by US$20-25/t in last couple of months. In spite of serious trade restrictions imposed on its imports by various countries, China acted in a disciplined manner with reduced export intensity and stable domestic demand. On the contrary, RoW (ex-China), the so called disciplined and earnings focused markets witnessed sharp contraction in demand and prices. This signifies structural downturn in steel sector on the backdrop of underlying weakness in RoW’s demandand peaked-out stimulus fed temporary acceleration in Chinese demand. Given the overleveraged B/S (Net debt/EBITDA of 4.5x) and weak earnings outlook, we reiterate Reduce with TP of Rs350, EV/EBITDA 5.5x FY21e.
Despite sharp increase in iron ore prices, steel prices softened by US$20-25/t in last couple of months. In spite of serious trade restrictions imposed on its imports by various countries, China acted in a disciplined manner with reduced export intensity and stable domestic demand. On the contrary, RoW (ex-China), the so called disciplined and earnings focused markets witnessed sharp contraction in demand and prices. This signifies structural downturn in steel sector on the backdrop of underlying weakness in RoW’s demandand peaked-out stimulus fed temporary acceleration in Chinese demand. Given the overleveraged B/S (Net debt/EBITDA of 4.5x) and weak earnings outlook, we reiterate Reduce with TP of Rs350, EV/EBITDA 5.5x FY21e.
BUY
Tata Steel Limited and Thyssenkrupp AG of Germany had signed definitive agreements in June 2018 to combine their business in Europe to create a 50:50 joint venture company which could have become second largest steel company in the European continent. However, European Commission expressed concerns and objections on automotive steel and packaging steel. The managements of these companies went back to EC with remedies which were found not sufficient. Expecting the deal to be rejected by European Commission, the management of these two companies decided to call off their proposed joint venture on 10th May 2019. With this development, Tata Steel plan to deleverage and de-consolidate business will get adversely impacted. However, the recent growth in company steel production has been led by strong domestic demand ably supported by moderate recovery in European operations. We have valued the stock on EV/EBITDA 6.3x of FY21E EBITDA for the downwardly revised TP of Rs. 618 with potential upside of 28%.
HOLD
Going forward, we expect demand from steel consuming sectors to pick up with the conclusion of elections and improvement in liquidity. Besides, focus on high margins automotive sector and making inroads into the oil and gas segment would be margins and realization driver. We remain positive on Tata Steel Limited as it is insulated from current surge in Iron Ore prices where the company has self sufficiency. Retaining our TP of Rs. 671 of ICR (Initial Coverage Report), we have valued the stock at 1 yr forward EV/EBITDA 4.7x of FY21E EBITDA which gives potential upside of 23%. However, key risks to valuation could be weakening of steel demand and lingering of trade war.
BUY
For Q4FY19, while domestic prices declined QoQ, on an absolute EBITDA basis, Tata Steel’s standalone operations reported a decent performance driven by a healthy volume push. Since February 2019, domestic steel prices have inched upwards, auguring well for the company. We continue to value the company on an SOTP basis and arrive at a target price of Rs 635. We maintain our BUY recommendation on the stock.
BUY
The stock currently trades at 2.6x FY19 BV (12.8x FY19e EPS of Rs 25.02) and 2.1x FY20 BV (10.7x FY20e EPS of Rs 29.85). With its focus on affordable housing loans and significant total network expansion (189 in 9MFY19; 16 opened since FY18), we expect its loan book to grow by 15.0% in FY20. GOI’s CLSS (Credit Link Subsidy Scheme) would also be a big boost as ~60% of its incremental loans are towards LIG (low income group) and 30-35% to MIG-1 (Mid-income group with salary from Rs 6 lacs up to Rs 12 lacs). NII growth would slow down to 5.3% for FY19, but pick up to 21.2% in current fiscal. Return ratios would see an improvement – ROA and ROE of 2.0% and 22.1% respectively in FY20. Weighing odds, we assign ‘buy’ rating on the stock with target price of Rs 417 (previous target Rs 432) based on 2.8x FY20e BV for a period of 9- 12 months; earnings expected to grow at CAGR 14.8% during FY18-20 period.
BUY
Tata Steel BSL’s (TS-BSL) Q4FY19 EBITDA of INR7.8bn came in line with our estimate. Key highlights: 1) shipments rose 23% YoY to 1.1mt primarily on higher exports; and 2) EBITDA/t slid 17% YoY to INR6,847 due to flat realisation amidst destocking & higher coking coal costs. We expect the demand headwinds to sustain on weakness in auto sector and the company’s EBITDA/t to stay range-bound between INR6,400 and INR6,800 through to FY21E due to subdued realisation despite TS-BSL’s cost-optimisation initiatives . Maintain ‘BUY’ on Tata Steel (TSL) with TP of INR600 on 6.6x September 2020E EBITDA.
BUY
We remain positive on Tata Steel on the back of increasing focus on higher margin domestic operations. Tata Steel’s standalone operations benefit from its integrated operations thereby clocking higher EBITDA/tonne vis-à- vis its domestic peers. After the recent correction, since the start of February 2019 both domestic as well as global steel prices have moved upward, auguring well for Tata Steel. Furthermore, with respect to the potential European JV so as to allay EU concerns, both ThyssenKrupp AG and Tata Steel have submitted concessions to European Union regulators in an effort to win antitrust approval for their steel joint venture. Both Tata Steel and ThyssenKrupp have submitted comprehensive solutions for the potential joint venture. The European Union is expected to review the latest set of proposals and announce its decision by June 5. We await the final outcome of the same. Hence, it remains a key monitorable. We introduce FY21 estimates and roll over our valuations. Valuing the stock on an SoTP basis, we arrive at a target price of Rs 625, with a BUY recommendation on the stock.
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About
Tata Steel Ltd.
NSE: TATASTEEL | BSE: 500470 | ISIN: INE081A01012 | Sector: Iron and Steel
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