NOMURA on Tata Steel

We expect Tata Steel India to see significant earnings expansion on account of new capacity, lower raw material costs and an improving price cycle. We believe that Tata Steel’s domestic value is worth Rs 735 per share based on 9x FY12 standalone EPS of Rs 92.3. Tata Steel is also augmenting the capacity of its coal mines along with its 3mn tonne expansion. After the 1.8mn tonne expansion completed earlier this year, the company’s dependency on imported coking coal has gone up from 30% previously to 50% now. However, with the expansion of coal mines, Tata Steel expects to meet 60% of its overall requirements through domestic coal. We believe the company can save significantly from it. With the European operations improving rapidly, we believe the negative contribution from Corus would turn positive as earnings turn around. This, we believe, makes Tata Steel one of the most attractive plays in the Indian steel sector.