CLSA downgrades Tata Steel to 'Sell'; slashes target price by 40%

MUMBAI: Tata Steel shares slipped nearly 3 per cent in intraday trade after brokerage CLSA downgraded the scrip to 'Sell' from 'Buy’ and slashed the target price by 40 per cent to Rs 290 from Rs 480 earlier.

According to the brokerage house, the company may face margin contractions due to depressed steel prices and rising regulatory costs. It expects India margins to stay below $150 per tonne.

CLSA does not expect any growth in India EBITDA over FY14-18 even after full ramp-up of the Orissa plant. However, it feels that sale of Corus' long products business is a potential near-term catalyst but the proceeds and value accretion from this might be minimal.

CLSA has slashed Tata Steel's FY16-17 EBITDA by 9-19 per cent. It is of the view that performance of Tata's non-Corus subsidiaries has deteriorated and is adding to the pressures.

"Our positive view on Tata was based on value accretion from Orissa plant but the deterioration in steel price/India cost outlook has wiped out the positives," the CLSA report said.