Tata Steel Ltd 3QFY09 Standalone Result Update ; REDUCE ; Target : Rs143

Tata Steel Ltd

 

3QFY09 Standalone Result, below estimates

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REDUCE

 

CMP: Rs171                               Target Price: Rs143

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Tata Steel reported standalone 3QFY09 results, significantly below our estimates. Net sales stood at Rs47.4bn (yoy down 4.8%, qoq down 29.8%), EBITDA stood at Rs14.1bn (yoy down 32.7%, qoq down 54.1%) and adjusted PAT stood at Rs5.5bn (yoy down 49.1%, qoq down 72.7%). The company reported MTM forex loss of Rs1.27bn, which was in line with our estimates. The EBITDA margins declined by 1,235bps on yoy basis and by 1,581bps on sequential basis to 29.8%. The decline was primarily due to increase in raw material cost by 290bps on yoy basis and 598bps on sequential basis to 23% of net sales due to higher contract coking coal cost. Also, the staff cost increased by 468bps on yoy basis and by 314bps on sequential basis to 12% of net sales. During the quarter, average steel realization was down by Rs6,620/t on sequential basis and was up by Rs6,465/t on yoy basis. The 2.9mtpa expansion project is progressing as per schedule. As on 31st Dec '08, Tata Steel (standalone) has net debt of Rs240bn. At CMP of Rs171, the stock is trading at 2.3x FY09E FDEPS of Rs73.3 and at 2.8x FY10E FDEPS of Rs60.8. On EV/EBITDA basis the stock is trading at 4.3x FY09E EV/EBITDA and at 4.5x FY10E EV/EBITDA; while on P/B basis the stock is trading at 0.9x FY09E book value and at 0.7x FY10E book value. We are downgrading the stock from HOLD to REDUCE with target price of Rs143.