Tata Steel: Concerns receding

Barclays, in the past, been cautious about Tata Steel's prospects

The foreign broking house Barclays has been cautious in the past about the prospects of Tata Steel considering that weak cash flows coupled with the requirements of funds for its capex on the on-going projects would lead to a further increase in balance sheet gearing or leveraging.

However the brokerage now believes that early signs of a demand rebound in Europe, flexibility in India capex plans (Odisha Phase-II), strategic stake sales of non-core assets, and improving volume growth visibility in the India business make could be positive and ease come of its earlier concerns. 

 

It said that Tata Steel’s Odisha Phase-I (3mt) is tracking its execution timelines and is expected to commission by 4QCY14. Timely execution would improve volume growth visibility beyond FY15. The brokerage now assign a $1 billion value for Odisha Phase-I (vs. $4 billion project cost) given reducing project execution risks. These developments are also looked in the background of stock’s relative underperformance among its regional and global peers over.

“Tata Steel becomes our top pick among steel producers in the Asia ex Japan region,” said Barclays report. The brokerage has upgraded its rating on the company to overweight with the revised target price of Rs 358 compared to earlier Rs 264. The stock is currently trading at Rs 296.7 per share, which is about 11 time its estimated earnings in financial year 2015.