ICICIdirect.com has recommended hold rating on Tata Steel with a target price of Rs 575, in its research report dated August 18, 2014.
"Tata Steel reported a mixed set of Q1FY15 (consolidated) numbers wherein topline came in lower than our estimate on account of subdued sales volume while EBITDA margin came in higher than our estimate. PAT came notably lower on account of impairment charge taken for the Benga project. Indian operations reported steel sales volumes of 2.1 MT, up 5% YoY (our estimate: 2.2 MT) whereas European operations reported steel sales volume of 3.2 MT (our estimate: 3.5 MT). On a consolidated basis, total steel sales volume for the group stood at 6.4 MT lower than our estimate of 6.7 MT. Due to lower-than-expected sales volume, topline came in lower than our estimates. The company reported a consolidated net income from operations of Rs 36427.2 crore for the quarter, down 14.1% QoQ but up 11% YoY and below our estimate of Rs 39296.9 crore."
"The consolidated EBITDA came in at Rs 4272.6 crore (EBITDA margin of 11.7%), down 14.7% QoQ but up 15.8% YoY and in line with our estimate of Rs 4336.4 crore (EBITDA margin expectation of 11%). EBITDA/tonne for Indian operations was at Rs 15528/tonne (our estimate: Rs 15008/tonne) while adjusted EBITDA/tonne for European operations came in at ~US$48/ tonne (our estimate: US$40/tonne). The consequent consolidated PAT came in at Rs 337.3 crore (our estimate: Rs 2224.1 crore). PAT came in lower on the account of an impairment charge the company undertook for its Benga project, which resulted in non-cash write down of Rs 1577 crore."
"The company's Indian operations are expected to continue to provide stability of earnings while its European business has reported operational efficiencies in the last few quarters on a consistent basis. We have valued the domestic operations at 6.5x FY16E EV/EBITDA and European operations at 5x FY16E EV/EBITDA. We have arrived at a HOLD recommendation on the stock with a target price of Rs 575," says ICICIdirect.com research report.
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