INSUBCONTINENT EXCLUSIVE:
JM Financial has a buy call on Tata Steel with a target price of Rs 745.
The current market price of Tata Steel is Rs 581.60.
Time period
given by the brokerage is one year when Tata Steel price can reach the defined target
Investment rationale by the brokerage:Robust performance at Indian operations: Tata Steel India reported a revenue growth of c.9.1 per cent
QoQ, driven by a) 6.8 per cent YoY increase in volumes and b) c.2.2 per cent YoY increase in realisations
EBITDA came in at Rs 60bn (+18.2 per cent QoQ), significantly higher vs
JMfe of Rs 52.7bn, primarily driven higher blended realisation
Blended EBITDA/t increased from Rs 17.1k/t in 1QFY19 to Rs 18.9k/t in 2QFY19.
Muted performance at Corus driven by higher costs: Corus
EBITDA per ton came in at USD 70/ton in 2Q as against JMfe expectation of USD 76/ton driven by higher costs
EBITDA declined 36.2 per cent QoQ to USD 159mn, primarily driven by higher raw material and energy costs.
South East Asia operations benefit
from improved realisations: South East Asian operations reported a 14 per cent QoQ revenue growth, driven by improved deliveries at Nat
steel and better realisations at both Nat Steel and Tata Steel Thailand
EBITDA remained flat QoQ at Rs 1.1bn in 2Q.
Bhushan steel continues margin expansion: Bhushan steel earlier reported a revenue growth of
c.26.8 per cent YoY to Rs 58.6bn in 2QFY19, driven by 34.1 per cent increase in volume, partially offset by 5.5 per cent decline in
Volumes benefited from improved marketing strategy which aided in inventory reduction
EBITDA increased 42 per cent QoQ to Rs 11.8bn
EBITDA/t increased from Rs 9.7k/t in 1QFY19 to Rs 10.3k/t in 2QFY19
Tata Steel expects full synergy to kick in once Bhushan steel achieves production of 5mtpa in 24 months.
Organic/inorganic growth strategies
The expansion plan of 5mn tons of capacity at Kalinganagar is on track with an estimated project cost of Rs 235bn, including Rs 160bn up to
Tata steel also signed a definitive agreement for the acquisition of steel business of Usha Martin via its subsidiary Tata Sponge Iron
The acquisition is expected to complete in 4QFY19.
