Buy Tata Steel; target of Rs 780: Prabhudas Lilladher
Prabhudas Lilladher’s research report on Tata Steel
In our recent interaction with TATA Steel ’s (TATA) Investor Relations Team , they reemphasized on their plans to expand market share in India with 1) B rownfield expansion of Kalinganagar operations, 2) acquisition of Usha Martin’s (UML) steel operations in Jamshedpur and 3) increase in utilization of recently acquired Bhushan Ste el (BSL). Management is confident of significant improvement in margins of acquired assets with the rationalization of input prices and increase in realizations to bring them on par with TATA . Firm outlook on steel prices, reduction of exposure to Europe an markets (through JV with ThyssenKrupp) and sweating of acquired assets increases our conviction (TP of Rs780). Newsflow on Bhushan Power and Steel (BPSL) acquisition can remain an overhang in the near term.
However, we believe that recently concluded acquisition of UML would reduce TATA’s aggressiveness for BPSL’s acquisition. Maintain BUY.
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