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MOSL: TATA STEEL (Buy) - Below estimates - EPS cut - cash flow outlook intact




Motilal Oswal Securities Ltd.


14 Aug 2014





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TATA STEEL 1QFY15: Below estimates; EPS cut; cash flow outlook intact (TATA IN, Mkt Cap USD8.5b, CMP INR535, TP INR650, 21% Upside, Buy) EBITDA below estimates on disappointment in subsidiaries: consolidated EBITDA increased 16% YoY to INR42.7b (v/s est. of INR45.6b). Indian operation’s (TSI) EBITDA at INR32.6b (+15% YoY) was in-line on strong margins and volumes. European operation’s (TSE) EBITDA increased 28% YoY to INR9.95b (v/s est. of INR11b). TSE’s EBITDA per ton was respectful at USD52/t. The contribution from other subsidiaries disappointed due to pressure from Chinese competition. Higher interest depreciation & tax rate dragged PAT: Depreciation charges were 7% higher than estimates pursuant to Companies Act 2013 becoming effective on 1st April, 2014. Interest cost increased 7% QoQ due to higher interest on term loans. Consolidated PBT (before EO) increased 14% YoY (-32% QoQ) to INR16.9b, 23% below estimates as a combined effect of lower EBITDA, higher interest and depreciation charges. Adjusted PAT declined 47% YoY (-45% YoY) to INR6b (v/s est. of INR13.2b). INR16b cash inflow from asset sales: Extra-ordinary items dragged reported consolidated PAT by net INR2.6b to INR3.4b. There was gain of INR13.1b (INR16b net cash inflow during the quarter) on sales of investment in Dhamra Port and impairment of INR15.7b towards investment in Mozambique coal mines. EPS cut but cash flow outlook intact; Maintain Buy: Although our consolidated EBITDA estimates remain unchanged, there is a cut of 27%/ 24% in FY15/ FY16 EPS respectively due to higher interest and depreciation charge. The cash flow outlook remains intact. Tata Steel is well positioned with new capacities in India to capitalize on expected acceleration in demand growth. Maintain Buy.

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