For 3QFY2009, Tata Steel posted y-o-y consolidated topline growth of 4% to Rs33,191 crore (Rs31,899 crore).
Revenues grew despite the 30% production cuts announced by Corus during October 2008, mainly due to higher realizations. Led by production cuts in Corus and Asian Subsidiaries, consolidated sales volumes declined by 23.6% y-o-y to 6.1mn tonnes (8.0mn tonnes).
However, blended realizations improved by 36% y-o-y to $1,127/tonne. It may be noted here that spot prices of steel in Europe have declined by more than 50% from their peak during July-August 2008.
However, Corus managed to clock better realizations due to higher contract prices and better product mix. For 9MFY2009, the company delivered almost 26.6% y-o-y growth in consolidated topline to Rs1,20,898 crore (Rs95,502 crore).
We are upgrading our FY2009 consolidated EPS estimates by 20% to factor in the better-than-expected 3QFY2009 results, better realization registered during 9MFY2009 and lower-than-expected tax.
Tata Steel has also re-negotiated its coking coal contract for the remaining of FY2009, which will help it save on coking coal costs.
However, we maintain our FY2010 EPS estimate at Rs38. At Rs172, Tata Steel is trading at a P/E of 4.5x, EV/EBIDTA of 4.1x and P/B of 0.4x on FY2010 estimates.
We continue to value Tata Steel at P/B of 0.3x and arrive at the Fair Value of Rs146 (Rs172). Hence, we downgrade the stock from Neutral to REDUCE.