>Tata Steel (CITI)

TATA IRON & STEEL COMPANY LIMITED
COMPANY FLASH

Sell: By No Means In The Clear

* 3Q FY09 PAT falls across regions — Cons adj PAT was Rs10bn, 23% lower yoy but better than estimates on higher than expected EBITDA and cost savings - major part of the savings being on account of hedging gains. EBITDA margins fell 350bps to 8.7% and EBITDA fell 29% to Rs29bn. Revenues rose 4% to Rs332bn despite a 24% fall in volumes (6m tonnes) due to higher realizations.

* Tata Steel India PAT fell 43% yoy — Adj. PAT at the Indian operations came in at Rs5.9bn. EBITDA margin fell to 31% vs 42% last year on lower steel volumes (-14% yoy), lower ferro alloy margins and higher raw material costs (+80% yoy per tonne). Steel PBIT margin was 31% vs 42% last year. Ferro alloys divisional PBIT fell 39% yoy to Rs1.4bn and PBIT margin was 21% vs 26% in 3Q FY08.

* Asian operations — NatSteel reported a US$16m EBITDA loss (margin -5%), while Thailand reported an EBITDA loss of US$76m, (margin -60%). Volumes fell 43% and 25% yoy respectively at NatSteel and Thailand. Weak demand, inventory write-downs and political turmoil in Thailand impacted operations.

* Corus strong 4QFY09 but outlook bleak — 3Q EBITDA was 96% ahead of our expectations, likely to be a lag effect in the quarter with negative risks to earnings. Demand continues to be 35-50% down. GBP600m cost savings hinge on hedging gains and plant closures, only the latter is recurring benefit.

* Bearish stance still justified – Demand visibility remains low with prices continuing to fall in export markets and there is potential for further disappointment.

To see full report: TISCO