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Research
Tata Steel - Mixed Bag - Edelweiss
Posted On : 2012-08-21 20:43:57( TIMEZONE : IST )
Tata Steel's consolidated EBITDA of INR34bn was ~4% above estimates, led by a better performance at European operations (EBITDA/t of USD36 vs our estimate of USD14) even as Indian operations disappointed with EBITDA/t of USD323 vs our estimate of USD337 (owing to external coke purchases and high power cost). During the concall, the company maintained that H2FY13 will see an improved performance in India with issues related to coke purchases, power costs and volume growth seeing a reversal from Q3FY13 onwards. It also expects volume in Europe to rise in H2FY13. Given the limited risk to our earnings estimates, we maintain 'BUY' with a TP of INR522. The stock trades at FY14E EV/EBITDA of 5.3X.
Indian operations: High cost negates realisation gains
The sales volume of 1.59mt (flat YoY) was broadly in line while blended realisations were above estimates, rising by 4.6% QoQ. However, standalone EBITDA at INR27.8bn was well below our estimates of INR29.6bn due to high cost of power and external coke purchases. The company bought ~INR4bn (incremental) of external coke owing to partial shutdown of the existing coke oven batteries even as new batteries in the recently commissioned 2.9mtpa facility are yet to be commissioned. The sequential increase of 19% in power cost was led by an increase in tariff.
International operations lead to PAT outperformance
Consolidated PAT at INR5.9bn was above our estimate of INR3.2bn due to a better than expected performance in TSE (Tata Steel Europe) wherein realisations increased 8% QoQ, leading to an EBITDA/t of USD36 vs our estimate of USD14. TSE sales volume (at 3.2mt) dipped 9.5% YoY, but was in line with our estimates.
Outlook and valuations: Improvement in H2FY13; maintain 'BUY'
The management maintains that H2FY13 will see an improved performance in India with issues related to coke purchases, power costs and volume growth seeing a reversal from Q3FY13 onwards. It also expects an uptick in TSE volume in H2FY13 even as our FY14E EBITDA estimate for TSE is conservative at USD172mn against USD114mn reported in Q1FY13. The consolidated net debt is likely to remain at the current levels. Thus, we retain our earnings and maintain 'BUY/Sector Outperformer'.
