Emkay Global Financial Services has recommended reduce rating on Tata Steel with a target of Rs 466, in its November 27, 2009 report.
“Tata Steel reported consolidated 2QFY10 results, which were below our estimates. Net sales stood at Rs 253.9 billion (yoy down 42.5%, qoq up 9%), EBITDA stood at Rs 3.8 billion (yoy down 95.5%, qoq loss of Rs 299 million) and adjusted net loss stood at Rs 17.9 billion (yoy profit Rs 50.3 billion, qoq net loss Rs 19.9 billion). During the quarter, the company reported restructuring/impairment cost of Rs 9.1 billion. The average realization for Corus for 2QFY10 stood at USD894/t and average cost of production stood at USD990/t, implying a negative EBITDA of USD96/t (qoq –ve EBITDA of USD117/t). As per the management, 2HFY10 is expected to be better than 1HFY10 and expects Corus to be EBITDA neutral in 3QFY10 and to be EBITDA positive in 4QFY10. Corus has turned marginally EBITDA positive in Oct ’09. However, we believe Corus will make EBITDA loss of Rs 17.9 billion for full year FY10. As per the management, the prices in Europe have continued declining trend; however they are currently stabilizing. At the same time, Corus is also taking various measures to reduce cost of production.”
“In 1HFY10, the company has achieved cost savings of USD 738 million through “Weathering the storm program”. In 2QFY10, EBITDA of Corus was negatively impacted to the tune of USD 170 million due to unabsorbed fixed cost of Teeside plant (TCP). As per the management, the worst for TCP is over and they have started signing contracts for selling the slab produced at a rate higher than the cost of production. Currently, Tata Steel has consolidated net debt of USD 10.25 billion. We expect company to report net loss of Rs 14.6 billion for FY10 on consolidated basis. At the CMP of Rs 545, the stock is trading at 8.9x FY11E EPS of Rs 61. On EV/EBITDA basis the stock is trading at 17.2x FY10E EV/EBITDA and at 6.9x FY11E EV/EBITDA; while on P/B basis, the stock is trading at 5.4x FY10E book value and at 3.7x FY11E book value. We are downgrading the stock from HOLD to REDUCE with revised target price of Rs 466 (6.5x FY11E EV/EBITDA) (Previous target – Rs409),” says Emkay Global Financial Services research report.
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