Buy Tata Steel; target of Rs 720: Edelweiss

Edelweiss' research report on Tata Steel

We attended Tata Steel’s (TATA) analyst day at Jamshedpur and Kalinganagar and got better clarity on the company’s bright prospects that bolstered our positive view on the stock. Key takeaways: 1) Domestic capacity to double to ~26mt by FY22; 2) Kalinganagar operations (KPO) to be mainstay of future growth and higher margins; and 3) Retail and new initiatives/solutions expected to improve last mile connectivity and boost profitability by decommoditising offerings. In our view, TATA is in a sweet spot to enhance margins and market share by focusing on the 3C’s - Capacity ramp up, Cutting edge technology and Cost leadership. Maintain ‘BUY’ with our SoTP-based TP of INR720.

Outlook

We are upbeat on TATA’s initiative to focus on domestic market by doubling capacity in next 5 years and enhance presence in value-added segments. On retail front, the focus on innovative products is expected to boost profitability through decommoditising steel besides opening up new avenues for growth. Maintain ‘BUY/SO’ with our SoTP-based TP of INR720, implying exit multiple of 6.4x FY19E EBITDA. At CMP, the stock is trading at 6.3x FY19E EBITDA.

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