Prabhudas Lilladher has given Buy recommendation for Tata Steel with a target price of Rs. 1835 in its research report issued on Nov 15, 2021
Prabhudas Lilladher’s research report on Tata Steel
TATA steel (TATA) reported Q2FY22 EBITDA below our estimates/consensus estimates (CE) by 19%/14% at Rs164.6bn (+2% QoQ). The miss was due to lower margins in both domestic and Tata steel Europe (TSE) operations. Sentiments on Chinese demand turned negative over last quarter. Contrary to historical trend of China pushing volumes in the exports market at unfeasible prices levels in wake of soft domestic demand, the flow of Chinese steel exports has been significantly contained this time with stringent curbs on production. Nonetheless, Chinese steel prices came under pressure with fall of ~15% over last couple of months due to lower iron ore prices and weak demand. As expected, margins were expected to soften due to unsustainable coking coal prices. Having said that, FY23e margins would average out at significantly above historical averages by ~35-40% due to structural withdrawal of Chinese supplies and better outlook on demand.
Driven by attractive valuations and strong B/S, we reiterate BUY rating with TP of Rs1,835 (earlier Rs1,850) based on EV/EBITDA of 6.0x FY23e.