Stock Ideas: ICICI Securities has a buy call on Tata Steel, target price Rs 594

ICICI Securities has given a buy rating to Tata Steel with a target price of Rs 594. The share price moved down by -1.36 per cent from its previous close of Rs 326.70. The stock’s last traded price is Rs 322.25.

Key takeaways from Tata Steel Q4FY20 conference call are: i) FY21 sales volumes should be similar to FY20 on the back of opportunistic exports; ii) capex has been significantly curtailed – FY21 capex will be slashed over 50 per cent year on year to Rs 40-50 billion; iii) efforts are on to undertake cost and process efficiencies in Europe, where employee costs have been reduced by GBP60 million over the past six months; iv) group debt maturity is less than $250 million each year over FY21/FY22; and v) Tata Steel Mining can grow into something more interesting given an underlying motive to create a more lean cost structure in India mining.

Investment Rationale


The brokerage maintains a buy rating with an unchanged target price of Rs 594/share. It continues to maintain valuation methodology at 1 times 1-year forward P/B (FY22E).

Key risks to its call are not earnings-linked. The brokerage said it would continue to highlight the irrelevance of earnings-based analysis in the sector. The brokerage has subjected FY21E to a heavy loss, just to highlight the relative constancy of the book value and the predictability it imparts to its valuation methodology.

Tata Steel’s consolidated Q4FY20 result review

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 33769.95 crore, down -2.89 per cent from last quarter sales of Rs 34774.29 crore and down -18.01 per cent from last year same quarter sales of Rs 41186.44 crore. The company reported net profit after tax of Rs -1708.18 crore in latest quarter.

Promoter/FII Holdings

Promoters held 34.41 per cent stake in the company as of March 31, 2020 while FIIs held 12.39 per cent, DIIs 29.36 per cent and public and others 29.32 per cent.