Tata Steel Ltd shares dropped as much as 5.5% to Rs 445 levels in early trade on Monday after the company posted a surprise loss of Rs 1,229 crore for the third quarter ended December (Q3) compared with a profit of Rs 1,753 crore in the corresponding quarter of the previous fiscal year. The results were mainly dragged down by weak performance of the company’s Europe business amid challenging macroeconomic conditions globally.
However, despite weak Q3 results, most brokerages remained positive on the stock. For instance, global brokerage firm Citi issued a ‘buy’ call on Tata Steel with the target price of Rs 550 per share. Citi said that it believed the worst is behind, even though the recovery in Europe may not be immediate. It added that the stock could stay volatile pending visibility on the duration of disruption in China.
Though Citi cut Tata Steel’s Ebitda (earnings before interest, tax, depreciation and amortization) forecast for FY20 by 17%, the same was tweaked only marginally for FY21 and FY22.
Kotak Institutional Equities also maintained its ‘buy’ call on the Tata Steel stock, but the target was reduced to Rs 560 per share from Rs 600 earlier. The brokerage firm said the steel company’s substantial miss on adjusted earnings in the December quarter was mainly led by an Ebitda loss of Rs 100 crore in Europe and weak domestic margins.
However, it was hopeful that domestic margins should recover from the fourth quarter due to a surge in steel prices. Kotak, too, reduced Tata Steel’s Ebitda estimates by 14% for FY20 and 8% for FY21.
Edelweiss Securities also maintained its ‘buy’ call while revising its target price downwards to Rs 570 from Rs 590 earlier. The brokerage firm was upbeat on the company’s deleveraging by focusing on working capital reduction. It expected Tata Steel’s performance to improve going ahead, primarily aided by better realisation. Edelweiss revised down Tata Steel’s Ebitda estimates for FY21 and FY22 by 3% each.
Another foreign brokerage firm JP Morgan maintained its ‘overweight’ rating on Tata Steel with target price of Rs 575. It said PAT (profit after tax) loss in Q3 was driven by large Ebitda loss in Europe, while adding that Q4 should to see strong rebound in earnings due to sharp improvement in steel prices. It cut FY20 EPS (earnings per share) estimates by 27% for the company.
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