Tata Steel

Edelweiss on Tata Steel - Target price Rs 669

Edelweiss has maintained its Buy rating on Tata Steel with a target price of Rs 669 - an upside of 22%.A report released said: We continue to believe H2FY10 and FY11 will witness sharp turnaround for Corus with the company turning PAT positive. Recent uptick in Chinese steel prices (by 8.5% in the last one month) and strong recovery in Baltic freight index (up 85% since October 2009) continue to point towards recovery in global steel.

We expect firm to moderately increasing steel prices in Q4FY10 and then into FY11 based on this. We marginally change (down ~5%) our estimates of EBITDA for Corus and core EPS (excluding restructuring charges) for FY10E and FY11E to account for increased cost pressure.

With increasing volume growth, firm/moderately increasing European steel prices and reducing costs at Corus going forward, we increase our FY11E EV/EBITDA for Corus from 4.5x to 5.5x. Our fair valuation stands revised upwards to INR 669/share from INR 561/share earlier. We maintain our ‘BUY’/‘Sector Outperformer’ recommendation on the stock.