Prabhudas Lilladher has given Buy recommendation for Tata Steel with a target price of Rs. 1745 in its research report issued on Feb 08, 2022
Prabhudas Lilladher’s research report on Tata Steel
TATA steel (TATA) reported Q3FY22 EBITDA in line with our estimates at Rs158.9bn (down 3.4% QoQ). While it came above consensus estimates (CE) by 4%. India operation’s EBITDA came above our estimates by 5% while Tata steel Europe (TSE) missed our expectation by 20% due to higher energy cost. Recent relaxation of monetary policy for real-estate sector and front loading of infrastructure spending reflects visible pressure on Chinese authorities to stimulate economic activity after registering meaningful slowdown over last two quarters. While, concerns on oversupply resulting from contraction in demand were addressed by commensurate curbs on production. Unlike past, this limited the intensity of Chinese mills to dump steel in exports markets. In the midst of low competitive intensity of Chinese mills and improving visibility on demand, abnormal surge in coking coal prices by ~27% in a month to All-time high level of US$445/t will be a pressure point for earnings of steel companies in next couple of quarters. Notwithstanding that, margins of Indian steel mills are significantly better than historical levels on back of strong steel prices.
Underpinned by solid B/S, sound earnings outlook (with FY23e margins lower by 33% over Q3FY22) and attractive valuations, we reiterate BUY with TP of Rs1,745 (earlier Rs1,842), EV/EBITDA of 5.7x FY23e.