Angel Broking recommends Buy on Tata Steel with a Target Price of Rs 454 (12 months)

Healthy performance from standalone business continues: Tata Steel's Indian operations posted a net sales growth of 8.3% yoy to Rs. 10,143cr, mainly due to increase in volumes. Volumes increased by 9.5% yoy to 2.0mn tonne. Net steel realizations were flat yoy at Rs. 45,198/tonne. The standalone PAT was also up by 45.1% yoy at Rs. 1,519cr due to higher other income.

European operations posts healthy operating performance: On a consolidated basis, the company's consolidated net sales increased 14.4% yoy to Rs. 36,736cr (above our estimate of Rs. 36,257cr). TSE sales volumes grew by 5.6% yoy to 3.2mn tonne. The European operations reported an EBITDA/tonne of US$44 compared to a loss of US$26 in 3QFY2013 due to better cost control efforts at the European operations. The consolidated EBITDA increased by 79.0% yoy to Rs. 4,007cr. However because of higher tax rate of 64.2% due to absence of tax credit in its European operations, the adjusted net profit stood at Rs. 502cr (below our estimate of Rs. 826cr), compared to a loss of Rs. 743cr in 3QFY2013.

Outlook and valuation: We maintain our positive stance on Tata Steel as its earnings growth is likely to be driven by a) higher sales volume in FY2014-16 on the back of 2.9mn tonne brownfield expansion project in Jamshedpur and b) steady improvement in profitability of European operations. We maintain our Buy rating on the stock with a revised SOTP target price of Rs. 454.

Source : Equity Bulls

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