Remain ‘overweight’ on Tata Steel and would the weakness in stock price as buying opportunity. We assign September 2015 target price of R630 per share, given the visibility in European steel demand.
Tata remains among our top picks in India, and we are not worried about steel price declines driven by the iron ore price correction. Tata’s investment thesis of de-leveraging remains intact even with lower India margins, as large India volume growth should drive cash flows higher. Europe remains steady, and the potential long product disposal is not baked into the stock price, in our view.
After the state of Odisha renewed the Chromite ore mine, there was more relief for Tata on the critical iron ore issue. The High Court of Jharkhand has reportedly asked the state government to renew the company’s Noamundi iron ore mines in a week, failing which Tata can start mining within a week, December 18. In our view, even if the state were to appeal in the Supreme Court, (the state is currently under election mode, and a new government would come in by end Dec), we believe the order which applies to both SAIL and Tata, effectively allows for mining to re-start. The focus now would shift to Odisha, where the mine renewals are held up for want of forest clearance.
Nomura