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




Axis Capital Limited


14 Nov 2013





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Q2 consolidated EBITDA at Rs 37 bn (up 60% YoY) was above our and consensus estimate of Rs 32 bn, mainly due to better than expected profitability at international operations (EBITDA/ton was USD 28/ton vs. our estimate of USD 15/ton). European profitability has been improving over last three quarters led by efforts to rationalize costs. Domestic operations: Volumes improved 18% YoY to 2 mnt led by ramp up at its 3 mnt Jamshedpur expansion. Avg. steel realization was flat QoQ at Rs 44,740/t despite weak long prices (1/3rd of overall volumes). Blended EBITDA/ton was Rs 13,400 vs. Rs 13,600 in Q1FY14 and Rs 13,400 in Q2FY13. Long products was on a planned shutdown since September and has now resumed in November. Outlook  Domestic operations: Domestic steel companies increased prices by Rs 2,000-3,000/ton in September and October. The full impact of this price increase will be seen in Q3 and should thus help realization. Domestic demand (as per Joint Plant Committee) however remains subdued with YTD September demand growth remaining flat. Our channel checks indicate demand was subdued in October and November as well  European operations: Management sees European steel demand stabilizing with an expected growth of 2-3% after years of decline. Profitability to remain respectable led by efforts to improve product mix and rationalize costs Valuation We raise our international operations’ EBITDA/ton estimates for FY14 and FY15 to USD 33 (USD 25 earlier). Thus, we increase our EPS estimates for FY14 to Rs 29 (Rs 24 earlier) and for FY15 to Rs 34 (Rs 28 earlier). Maintain HOLD with revised target price of Rs 360 (4.5x FY15 EV/EBITDA) vs. Rs 312 earlier. At CMP of Rs 359, our target price implies no upside and the stock trades at 4.8x FY14E EV/EBITDA and 4.5x 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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