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Tata Steel (TATA) - Qtr. Update - Dtd. - February 13, 2013




Axis Capital Limited


14 Feb 2013





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Tata Steel’s Q3 consolidated EBITDA at Rs 24.7 bn (flat YoY) was in line with our estimate of Rs 25 bn. Adjusted net loss at Rs 5.1 bn was however higher than our estimate of Rs 2.5 bn due to higher depreciation and interest costs.  Domestic operations: Q3 production at 2.1 mnt was highest ever quarterly production, as it continued to ramp up its newly commissioned expanded facilities. Sales volume was at 1.9 mnt (up 17% YoY and up 8% QoQ). Avg. steel realization/ton declined 6% QoQ to Rs 45,300.  International operations: Volumes at European operations was at 3 mnt (down 10% YoY and 12% QoQ). Adjusted for restructuring costs of USD 46 mn, EBITDA/ton loss was USD 10 vs USD 2 in Q2. Coke-oven battery, as part of the domestic expansion, was commissioned in December 2012. This is expected to reduce external purchases of coke, resulting in cost savings going forward. Outlook Indian steel prices have begun inching up in line with global prices. Recent modest price hikes and higher volumes should improve earnings of domestic operations in Q4. Profitability at European operations should also improve in Q4 led by higher steel prices and full impact of the decline in raw material costs. Upgrade to Buy on recent correction in stock price (16% upside from CMP of Rs 376) We cut our EPS estimates for FY13 to Rs 12 (Rs 26 earlier) and for FY14 to Rs 39 (Rs 50 earlier) to factor in lower profitability at European operations. We roll forward our valuation to FY15 and arrive at target price of Rs 437 (4.5x FY15/EBEBITDA). Upgrade to BUY due to recent correction in stock price. The stock trades at 4.7x FY14E EV/EBITDA and 4.2x FY15E EV/EBITDA. Regards, Nitesh Jain (Sr VP – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1145 Jagdishwar Toppo (Executive Director – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1103 Sujan Sanisetty (Asst VP – Materials) Institutional Equity Research Axis Capital Ltd Tel: +91 22 4325 1122

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