What Brokerages Made Of Tata Steel-Thyssenkrupp JV Collapse

Shares of Tata Steel slipped as much as 3.1 percent following a 6.2 percent fall on Friday after a proposed merger of its European operations with Thyssenkrupp was abandoned.

The venture was expected to remove over Rs 200 billion in debt from Tata Steel’s books and bring synergy benefits to the tune of over €400-500 million. The company said at a recent interaction that it’s open to all options for its European business.

While most brokerages maintained their ratings on the steelmaker’s stock, a few of them reduced the target price.

Credit Suisse:

• Maintain ‘Outperform’; target price reduced to 570 from Rs 628.
• Extent of deleveraging has suffered.
• Tata Steel Europe likely to be free cash flow negative in FY20 as well.

Jefferies:

• Maintain ‘Underperform’; target price reduced to Rs 438 from Rs 448.
• If 50 percent/100 percent synergy were realised, value boost would have been Rs 36-77 per share.
• Large-scale deal appears difficult.

Citi

• Maintain ‘Sell’; target price is Rs 435.
• Failure of joint venture to add to leverage woes.
• Remain bearish on steel in the medium term.
• De-leveraging unlikely to be easy.
• Potential slowdown in India growth plans.

JP Morgan

• Maintain ‘Overweight’; target price unchanged at Rs 486.
• See stocking reaction as excessive and remain buyers at weakness.
• Cash breakeven target for Europe of $450-500 million achievable.
• Breakeven important to fund interest and maintenance capex.
• Don’t see Tata India giving cash flow support to European entities in near future.