Buy rating on Tata Steel is reiterated with a target price of Rs.489 over one year.
The main concern on Tata Steel has been the extent of weakness in Europe. But the current
perception is that even in the midst of current weakness, Corus should deliver USD 20-30 EBITDA /
ton versus the earlier estimate of USD 28 EBITDA / ton.
Margins should improve further in 2HFY13 with the Pt Talbot rebuild and easing in China.
With upward re-pricing of contracts in 1QFY13, Corus ASP (average sales price) have improved USD
20-25/ ton qoq. With the decline in coking coal prices, Corus should comfortably deliver USD 20-30
EBITDA / ton in 1QFY13.
Comments from other European steel makers also suggest a clear upturn in 2Q12 margins versus
The stock has been trading close to its trough valuation. It is expected that the stock would reverse its
year to date de-rating driven by 2H12 policy easing in China and Europe.
With the stock price implying almost no FY13 EBITDA margin for Corus, the risk-reward ratio is
Jamshedpur/ Benga ramp up and Pt Talbot rebuild are near term triggers for the stock.