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Tata Steel Ltd. (TATA) - Qtr. Update - Dated - August 13, 2013




Axis Capital Limited


14 Aug 2013





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Q1 consolidated EBITDA at Rs 36.9 bn (up 8% YoY) was significantly above our estimate of Rs 29 bn and Bloomberg consensus estimate of Rs 31 bn, mainly led by better than expected profitability at Tata Steel Europe (TSE). TSE’s EBITDA/ton improved to USD 45/ton vs USD USD 32/ton in Q4FY13 led by improved product mix and operational efficiencies post the revamp of its Port Talbot furnace. Domestic operations: Volumes improved 26% YoY to 2 mnt led by ramp up at its 3 mnt Jamshedpur expansion. Avg. long product realization was flat QoQ at Rs 37,140/t despite weak market prices due to high brand premium that Tata Steel’s products enjoy. Avg. flat realization improved Rs 1,000/ton QoQ to Rs 36,230/t. Blended EBITDA/ton was Rs 13,600 vs Rs 16,200 in Q1FY13 and Rs 14,100 in Q4FY13. Outlook  Domestic ops: Domestic steel demand remains subdued led by weak auto/infra demand, with Apr-July demand flat YoY at 24 mnt. Flat product prices have remained stable since end Q1 while long prices have declined ~Rs 1,000-1,500/ton led by weak infra/construction demand. We expect domestic flat prices to remain stable with a positive bias while expect long prices to be supported at current levels led by Chinese steel price recovery and INR depreciation  European ops: While there are initial signs of stability in European steel demand, management has indicated that significant ground level improvement particularly in construction sector is yet to be seen Valuation We raise our international operations’ EBITDA/ton estimates for FY14 to USD 25 (USD 12 earlier) and for FY15 to USD 25 (USD 15 earlier). Thus we increase our EPS estimates for FY14 to Rs 21 (Rs 11 earlier) and for FY15 to Rs 25 (Rs 19 earlier). Maintain BUY with revised target price of Rs 306 (4.5x FY15 EV/EBITDA) vs Rs 275 earlier. At CMP of Rs 241, our target price implies an upside of 27% and the stock trades at 4.4x FY14E EV/EBITDA and 4.1x 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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