Buy Tata Steel for a target of Rs 718 says KRChoksey

KRChoksey in its February 17, 2010 research report has recommended a buy rating on the stock, Tata Steel with a target of Rs 718.

It further said, steel prices have gone up globally during January and therefore we expect EBITDA per tonne in European operations to improve further during Q4FY10 with raw material cost remaining on the lower side. Tata Steel has guided for fall in production in Q4 vs Q3 on account of mothballing of TCP and planned maintenance shutdown on BF No. 7 Ijmuiden, however deliveries are expected to improve as company is focusing on inventory reduction. Corus will be partially mothballing TCP plant by the end of February 2010, which will help minimize cost even further as TCP contributed significantly to losses during first nine months. We believe that restructuring initiatives undertaken by the company in Corus combined with expected improvement in realizations led by cost push will help Corus post healthy EBITDA during FY11E.  As iron ore and coking coal contracts for 2010 are expected at almost 30-40% higher levels than last year, global steel prices are expected to move up led by cost push. Indian operations with complete backward integration in iron ore and 55-60% in coking coal will see further margin expansion during FY11E as cost increase will remain on the lower side. We value the company at FY11E EV/EBITDA multiple of 7x, deriving our one year target price of Rs 718 (Rs 632 earlier) and recommend BUY rating on the stock.

Source:  Moneycontrol.