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Tata Steel Q3 Results: Brokerages Maintain Positive Outlook Despite Weak Earnings

Here’s what brokerages made of Tata Steel’s Q3 performance:

Workers walk towards a Tata Steel Ltd. plant in Jamshedpur, Jharkhand, on Feb. 11, 2019. (Photographer: Anindito Mukherjee/Bloomberg)
Workers walk towards a Tata Steel Ltd. plant in Jamshedpur, Jharkhand, on Feb. 11, 2019. (Photographer: Anindito Mukherjee/Bloomberg)

Most analysts retained their ratings on Tata Steel Ltd. after the steelmaker reported a surprise loss in the third quarter as domestic demand failed to pick-up and the performance of its European business deteriorated.

Some brokerages slashed their target price for the steelmaker while others revised their Ebitda targets for FY20 and FY21.

JP Morgan expects the stock to “react negatively” to the results but expects a sharp improvement in the company’s FY21 financials as various cost initiatives flow through. Shares of the company fell 4.8 percent to Rs 448.25 apiece on the National Stock Exchange, its biggest intraday slide in two months.

Here’s what brokerages made of Tata Steel’s Q3 performance:

Investec

  • Maintain ‘Buy’; cut target to Rs 515 versus Rs 560 earlier.
  • Ebitda miss on Europe business.
  • UML acquisition, lease accounting, and adverse forex movement ate into internal cash accruals.
  • Management’s $1 billion deleveraging seems to be a distant goal.

JP Morgan

  • Maintains ‘Overweight’ rating; target price of Rs 575
  • PAT loss was driven by large Ebitda loss in Europe.
  • Fourth-quarter to see strong rebound in earnings due to sharp improvement in steel prices.
  • Cut FY20 EPS estimates by 27 percent but see upside risks to FY21.
  • The stock should react negatively to the results.

Citi

  • Maintain ‘Buy’; target price at Rs 550.
  • Q3 was a multi-quarter trough.
  • Believe the worst is behind, though the recovery in Europe may not be immediate.
  • India: Third quarter Ebitda/tonne at a three-year low; Cut FY20 Ebitda by 17 percent on nine-month trends.
  • Remain positive in the medium term.
  • Stock could be volatile pending visibility on the duration of disruption in China.

Kotak Institutional Securities

  • Maintain ‘Buy’; cut target price to Rs 560 from Rs 600 earlier.
  • Substantial miss on adjusted earnings mainly led by Ebitda loss in Europe. and partially due to weak domestic margins.
  • Cut Ebitda by 14 percent/8 percent for FY20/21E.

Edelweiss Securities

  • Maintain ‘Buy’; target price of Rs 570 compared to earlier Rs 590.
  • Upbeat on deleveraging by focusing on working capital reduction.
  • Expect performance to improve, primarily aided by better realisation.
  • Revise down FY21/22E Ebitda by 3 percent each.