JPMorgan raises Tata Steel’s target price to Rs 500

MUMBAI: After Tata Steel’s impressive performance on net profit and EBITDA front, JPMorgan sees large EPS upgrades for the stock. It expects under-ownership to drive outperformance with Europe improving.

The brokerage has increased its target price on the stock to Rs 500 from Rs 455 earlier.

“Tata Steel delivered another beat and this was large, with consolidated PAT at 7x JPMe and 3.5x consensus. EBITDA beat by ~14%. The results highlight the leverage, especially in Europe,” the report said.

The net profit surged 90.5 per cent to over Rs 1,100 crore for the quarter ended June 2013 as compared to a net profit of Rs 598 crore in the corresponding quarter last fiscal.

Consolidated PAT was sharply ahead of estimates at Rs 11.3 billion, essentially driven by EBITDA beat, and sharply lower consolidated tax rate of 24 per cent vs JPMorgan estimate of 81 per cent.

India EBITDA stood at Rs 2830 crore, with EBITDA/T at Rs 14,000/tonne, broadly flat q-o-q even as 1Q included forex losses. Consolidated EBITDA stood at Rs 3700 crore versus JPMorgan estimate of Rs 3,200 crore, with the beat coming from Europe, which delivered EBITDA of Rs 8 billion vs estimate of Rs 3 billion.

The brokerage is of the view that predicting Tata Steel’s EPS remains difficult given multiple tax rates and currencies involved. It has focused more on EBITDA and increased it by 3- 4 per cent.

“The stock is under-owned and has underperformed peers such as Arcelor. We expect the recent bounce (up 20 per cent from lows) to continue given the results,” the report said.

The brokerage has increased its EPS estimates by 27-13 per cent for FY14-15 and revised price target upwards to Rs 500.

Meanwhile, Deutsche Bank has maintained ‘buy’ on the stock and increased target price to Rs 301 from Rs 286 earlier.

At 11:40 a.m.; the stock was at Rs 255.70, up 6.03 per cent, on the BSE. It touched a high of Rs 263 and a low of Rs 252 in today’s trading session.