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Tata Steel Results Cracking – Merrill Bearish – Morgan Bullish

November 27, 2009

Bull vs bearTata Steel announced its results for Q2 FY2010.Both Corus and Tata Steel consolidated reported EBITDA and PAT were in red for the Sep qtr as losses at Teesside (TCP), and restructuring charges of Rs9.1B (some related to contract cancellations) hit earnings.

Corus reported EBITDA loss of $375MM (including TCP loss of $170MM) vs the 1Q loss of $387MM. Realizations fell q/q across segments in Europe. Tata reported consolidated PAT loss of Rs28B, 35% higher than 1Q loss of Rs20.2B. Tata Steel plans to reduce debt by $2B in the medium term through a combination of existing cash ($2.3B), non-core asset sales.

Management highlighted that Corus was EBITDA positive in October, and to our query on the recent decline in steel prices possibly impacting profitability, management remained positive on the 2H earnings outlook.

Tata Steel EPS Estimates & Rating:
Morgan Stanley is a Big Bull in Tata Steel as it expects it to report an EPS of Rs 29 and 95 for FY10 and FY11 with a price target of Rs 645.

Merrill is UNDERWEIGHT on Tata Steel with EPS expectations of Rs 16 and Rs 49 for fy10 and fy11 with a price objective of Rs 405.

JP Morgan is NEUTRAL on Tata Steel with a price objective of Rs 475 and EPS estimates of Rs 4 for FY10 and Rs 69 for FY11.

Deutsche Bank expects EPS of Rs 14 and Rs 68 for FY10 and FY11 respectively.

Consensus EPS estimates for Tata Steel is Rs 24 and Rs 65 for FY10 and FY11 respectively.

Comments

One Response to “Tata Steel Results Cracking – Merrill Bearish – Morgan Bullish”

  1. Anonymous on November 27th, 2009 2:56 PM

    ENAM Research says,

    …Remain bearish on global steel outlook as the European HR steel prices are showing signs of weakness with demand uncertainty continuing. The European operations continue to remain vulnerable to decline in prices as customers remain non‐committal on contractual off‐take at higher prices. Our benchmark HRC price assumption for
    FY10 is USD 465/ tonne. We expect no change in FY11.

    Cut FY10 EPS to Rs2 (From Rs 15) on weak pricing environment in the near term while maintaining FY11 EPS ests at Rs 20. At 8.1x FY11 EV/ EBITDA, and the stock is overvalued

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