Analysts' corner

TATA STEEL
Reco price: Rs 484, Target price: Rs 700
Tata Steel announced its annual 2009-10 results, ahead of expectations. Consolidated net sales for the fourth quarter of 2009-10 (Q4FY10) came in at Rs 27,240 crore. The outperformance in the top line was on account of higher-than-expected realisations, both in the domestic and European operations. Sales volume in Europe came in at 3.9 million tonnes (mt), registering a marginal improvement sequentially. Consolidated earnings before interest, taxes, depreciation and amortisation (Ebitda) was Rs 4,750 crore, ahead of expectations. Net profit came in at Rs 2,430 crore after a restructuring charge of Rs 360 crore. While the economic environment in Europe needs to be closely monitored, restructuring taking place in European operations is positive. The depreciation of the British pound and euro are, however, likely to negatively impact 2010-11 and 2011-12 financial estimates. Maintain buy.

— Ambit Capital

INDRAPRASTHA GAS
Reco price: Rs 229, Target price: Rs 210
IGL reported a 27.7 per cent year-on-year (y-o-y) increase in bottom line at Rs 51.5 crore (Rs 40.3 crore) in Q4FY2010, lower than expectations because of lower gross gas margin and subdued CNG volume growth on a quarter-on-quarter (q-o-q) basis. On account of healthy top line growth of 26.8 per cent y-o-y and payment of over-drawal charges on excess withdrawal of gas in Q4FY09, operating profit margin expanded 75 basis points (bps) y-o-y to 32.6 per cent (31.8 per cent) in Q4FY10. There are still concerns on sustainability of the company’s high-margin business model, especially considering that margins were fuelled by lower gas costs (subsidised gas). The stock is trading at relatively expensive valuations of 15.8x estimated (E) FY2012 earnings and 3.1x FY2012E book. Maintain reduce.

— Angel Securities

TATA TEA
Reco price: Rs 1,033, Target price: Rs 1,154
While Tata Tea’s March quarter 2009-10 top line is in line with expectations, higher tax rate has resulted in lower profits. Net sales grew by a strong 28.3 per cent year-on-year to Rs 1,573.3 crore, primarily led by price increases, improved revenue mix and a contribution of around Rs 100 crore from its Russian subsidiary, Grand. The operating profit margin shrunk by 256 basis points y-o-y to 11.2 per cent due to higher raw material and advertisement costs. Operating profit grew only 4.5 per cent despite a good top line growth. While adjusted net profit grew 37.4 per cent y-o-y to Rs 77.4 crore it was below estimates of Rs 95.8 crore due to a higher than estimated tax rate. Maintain buy.

— Sharekhan