Result Review: Tata Steel

Result Review: Tata Steel
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First Published: Mon, Aug 03 2009. 08 56 AM IST
Updated: Mon, Aug 03 2009. 08 56 AM IST
Tata Steel reported PAT of Rs7.9 billion for the recently concluded quarter, which was below our expectation of Rs8.8 billion.
Net revenue declined by 9%, primarily on account of a sharp fall of ~57% in the revenue of Ferro alloys and mineral division (FAMD, resulted in ~88% of the overall fall) and rest of the decline was contributed by the steel business since volume growth of 22% was not enough to contain the 20% fall in realisations.
EBITDA declined by 43% to Rs16.8 billion due to a decline of 33% and 97% in the earnings of steel (82% share in the EBITDA) and FAMD businesses (17% share in EBITDA), respectively.
The performance on EBITDA level was well below our expectation of Rs17.9 billion. Blended EBITDA per tonne of steel volume declined by 54% to Rs11,854. However, on q-o-q basis, it is up by 53%.
Outlook
Benefited by higher volume (our expectation of 21% volume growth), improved realisations and reduced coking coal from Q2FY10 onwards, earnings for the rest of the year are likely to decline by 2% against 53% in Q1FY10 and almost identical decline in Q2FY10.
At the CMP, the stock trades at P/E of 11.8x and 8.7x FY10E and FY11E, respectively, while on EV/EBITDA, it trades at 8.1x and 6.7x FY10E and FY11E, respectively.
Tata Steel looks expensive given the uncertain outlook on the recovery in its Europe market and poor returns on a long term basis. We maintain REDUCE rating.
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First Published: Mon, Aug 03 2009. 08 56 AM IST
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