Centrum is bullish on Tata Steel has recommended buy rating on the stock with a target price of Rs 800 in its research report dated Se[ptember 24, 2018.
Centrum's research report on Tata Steel
We see Usha Martin (UML) steel business acquisition as a smart move given the attractive discount of 30% to greenfield cost for a well-integrated asset providing product diversification and synergy benefits. We see that Net Debt/EBITDA for consolidated operations including both Bhushan (BSL) and UML (excl. European business which is getting shifted to JV) is likely to remain in a comfortable zone of 3.1x in FY20E (vs 2.9x at FY18 end) led by strong cash flows of domestic business given the favorable steel cycle and low cost metrics. We expect TSL to abandon any further inorganic acquisition efforts in medium term given its five year goal of doubling capacity in India is well within reach now.
Outlook
Upgrade to Buy with a SOTP based TP of Rs 800 as we expect both Bhushan steel and Usha Martin acquisitions to be value accretive in medium term.
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