16August 2021 India Daily

INDIA DAILY August 16, 2021 India 13-Aug 1-day 1-mo 3-mo Sensex 55,437 1.1 4.3 13.8 Nifty 16,529 1.0 3.8 12.6 Contents Global/Regional indices Dow Jones 35,515 0.0 2.4 3.3 Daily Alerts Nasdaq Composite 14,823 0.0 2.7 10.4 Results FTSE 7,219 0.4 3.0 2.5 Tata Steel: Further upside ahead Nikkei 27,977 (0.1) (0.1) (0.4) Hang Seng 26,392 (0.5) (5.8) (5.8) ONGC: Muted results KOSPI 3,171 (1.2) (3.2) 0.6 BPCL: Subdued performance Value traded – India Grasim Industries: VSF shines while chemicals bottoms Cash (NSE+BSE) 600 714 618 80,02 Derivatives (NSE) 95,111 37,081 Apollo Hospitals: Going from strength to strength 9 Hero Motocorp: Market share gains in EV segment essential for re-rating Deri. open interest 11,583 7,519 8,752 Aurobindo Pharma: Capital allocation concerns back to the fore Ashok Leyland: CV cycle recovery likely in 2HFY22 Forex/money market Indraprastha Gas: In-line results Change, basis points 13-Aug 1-day 1-mo 3-mo Bayer Cropscience: Challenging year ahead Rs/US$ 74.2 (1) (25) 82 Cummins India: Riding on ability to outgrow market and favorable 10yr govt bond, % 6.2 1 4 23 externalities Net investment (US$ mn) Sun TV Network: Core business weak; accounting change to support 11-Aug MTD CYTD earnings FIIs 40 6,096 23,258 (1,131 MFs 10 (6,901) Oil India: Results boosted by lower costs ) Top movers GMR Infrastructure: Second quarter of stable corporate net debt Change, % Amara Raja Batteries: Tough road ahead Best performers 13-Aug 1-day 1-mo 3-mo Westlife Development: Ups store guidance PIEL in Equity 2,725 0.2 17.4 60.8 Dilip Buildcon: Challenging quarter TECHM in Equity 1,383 (0.2) 33.5 45.7 JUBI in Equity 3,782 1.1 22.4 34.1 Gujarat Pipavav Port: Winded, temporarily ACEM in Equity 402 0.7 9.1 30.2 TCNS Clothing Co.: 1QFY22: Muted performance CROMPTON in Equity 474 2.3 4.1 29.9 Company alerts Worst performers ARBP in Equity 761 (7.9) (20.4) (25.2) Cummins India: Harbinger of uptick in exports? LPC in Equity 977 0.1 (16.2) (19.4) Sector alerts NMDC in Equity 172 (1.0) (0.0) (15.4) Automobiles & Components: Electric revolution has begun INDUSTOW in Equity 214 (0.3) (10.7) (15.2) PLNG in Equity 216 0.7 (3.2) (12.9) [email protected] Contact: +91 22 6218 6427 For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES. REFER TO THE END OF THIS MATERIAL. BUY Tata Steel (TATA) https://ultraviewer.et/en/own Metals & Mining AUGUST 14, 2021 load.html RESULT Sector view: Attractive Further upside ahead. Tata’s 1QFY22 EBITDA is in line with our estimate with stronger CMP (`): 1,462 India margins offsetting the miss in Europe. Management commentary suggests that Fair Value (`): 1,750 (1) India margins at a record high in 1QFY22 could sustain in coming quarters and BSE-30: 55,437 (2) Europe margins could increase by 1-2X from 1QFY22 levels with a price reset in contracted volumes. We note that despite growth capex, Tata’s net debt/ EBITDA is likely to sustain at <1X over FY2022-24E. Strong steel prices and management guidance drive earnings and our FV upgrade to Rs1,750 (from Rs1,400). BUY for attractive valuations and a potential re-rating. Tata Steel Stock data Forecasts/valuations 2021 2022E 2023E CMP(Rs)/FV(Rs)/Rating 1,462/1,750/BUY EPS (Rs) 71.2 333.4 174.7 52-week range (Rs) (high-low) 1,482-343 EPS growth (%) 25.8 368.4 (47.6) Mcap (bn) (Rs/US$) 1,761/23.8 P/E (X) 20.5 4.4 8.4 ADTV-3M (mn) (Rs/US$) 17,874/241 P/B (X) 2.4 1.6 1.4 Shareholding pattern (%) EV/EBITDA (X) 8.4 3.5 5.1 Promoters 34.4 RoE (%) 11.8 44.4 17.9 FPIs/MFs/BFIs 19.4/11.6/13.5 Div. yield (%) 1.7 2.6 1.4 Price performance (%) 1M 3M 12M Sales (Rs bn) 1,563 2,087 1,807 Absolute 19.0 24.0 253.8 EBITDA (Rs bn) 305 653 413 Rel. to BSE-30 13.9 10.1 209.1 Net profits (Rs bn) 85 406 213 1QFY22: EBITDA in-line as India operations offset weakness in Europe Tata’s 1QFY22 standalone adjusted EBITDA of Rs36,700/ton (+25% qoq) benefited from higher prices and stable costs. Europe division saw a moderate increase in EBITDA at US$89/ton (+US$65/ton in 4QFY21) led by higher costs. Management guidance suggests a moderate increase in India margins and a sharp recovery in Europe margins in 2QFY22. India–EBITDA beat on lower costs. Standalone EBITDA of Rs99 bn (+689% yoy) led by 75% yoy higher realizations partly offset by higher costs (higher coking coal, overhead and operating leverage). Standalone sales volumes increased 28% yoy (-14% qoq) on a Covid-19 impacted base of 1QFY21. Exports formed 16% of the overall sales. Europe–EBITDA miss on lower costs/prices to remain elevated. EBITDA of US$89/ton (US$65/ton in 4QFY21) missed our estimates (US$126/ton) led by US$43/ton qoq increase in other costs. The sequential increase in costs was due to higher maintenance expenses and one-time carbon credit cost of GBP14 mn. Management guided for a Euro 200-250/ton qoq realization increase and US$25-30/ton increase in raw material costs in 2QFY22. Accelerate deleveraging creates room for further growth capex Tata has reduced net debt by 2% qoq to Rs804 bn (-23% yoy) as of June 2021 (adjusted for export advance and hybrid securities). We estimate 18%/11% FCF yield in FY2022/23E despite growth capex and accelerated deleveraging. Tata’s expansion projects are on track with (1) 2.2 mtpa cold roll mill and 6 mtpa pellet plant to commission in 1QFY2023E and (2) 5 mtpa KPO Phase II in FY2024E. Further, a strong balance sheet and multiple brownfield expansion opportunities provide strong growth visibility. Sumangal Nevatia Risk-reward remains favorable; maintain BUY with a revised Fair Value of Rs1,750 China’s recent changes in its steel export policy and supply restrictions should keep steel Prayatn Mahajan margins elevated for longer. We increase EBITDA by 22%/11% for FY2022/23E factoring the management guidance and recent price strength. Our FV increases to Rs1,750 (from Rs1,400) as we roll over to September 2023E. Maintain BUY on attractive valuations at 5.1X EV/EBITDA FY2023E after factoring sharp moderation in margins from spot levels. [email protected] Contact: +91 22 6218 6427 For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES’ RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL. Tata Steel Metals & Mining Exhibit 1: Interim results of Tata Steel (consolidated), March fiscal year-ends (Rs mn) (% chg.) 1QFY22 1QFY22E 1QFY21 4QFY21 KIE yoy qoq 2021 2020 (%chg) 2022E Net sales 533,718 520,616 254,745 499,774 3 110 7 1,562,942 1,489,717 5 2,087,092 Expenditure (375,543) (361,979) (244,943) (361,503) 4 53 4 (1,257,899) (1,311,441) (4) (1,433,632) Consumption of raw materials (200,439) (160,939) (103,796) (167,582) (554,234) (640,970) (14) (656,445) (Increase)/ decrease in stock 32,919 (20,763) (7,033) 16,421 (259) (568) 100 (15,168) 4,901 (410) — Staff Cost (56,626) (47,544) (46,788) (53,912) 19 21 5 (199,088) (191,522) 4 (192,701) Other Expenditure (151,396) (132,734) (87,325) (156,431) 14 73 (3) (489,410) (483,849) 1 (584,486) EBITDA 158,176 158,637 9,802 138,271 (0) 1,514 14 305,043 178,276 71 653,460 Other income 1,622 2,722 1,879 2,722 (40) (14) (40) 8,956 18,220 (51) 13,322 Interest (18,114) (18,663) (20,064) (18,663) (3) (10) (3) (76,067) (75,807) 0 (58,301) Depreciation (23,245) (23,924) (21,747) (23,924) (3) 7 (3) (92,336) (87,077) 6 (90,275) Pretax profits 118,438 118,772 (30,129) 98,406 (0) (493) 20 145,595 33,612 333 518,206 Extraordinaries 1,107 — (3,826) (6,341) (10,432) (49,296) (79) — Deferred tax (24,368) (25,997) (12,337) (21,355) (13,656) 46,665 (129) — Current tax 1,284 — (339) (595) (42,883) (21,136) 103 (108,166) Net income 96,461 92,775 (46,631) 70,115 4 (307) 38 78,625 9,845 699 410,040 Minority interest (8,614) — 2,356 (5,178) (6,996) 3,841 (282) (6,996) Share of profit from associates 1,223 — 150 1,504 3,273 1,880 74 3,273 PAT after minority interest 89,070 92,775 (44,126) 66,442 (4) (302) 34 74,902 15,565 381 406,318 Adjusted PAT 87,963 92,775 (40,299) 72,783 (5) (318) 21 85,334 64,861 32 406,318 Adjusted EPS (Rs) 73.4 80.9 (35.2) 60.8 71.2 56.6 333.4 Ratios EBITDA margin (%) 29.6 30.5 3.8 27.7 19.5 12.0 31.3 ETR (%) 19.5 21.9 (42.1) 22.3 38.8 (76.0) 20.9 Source: Company, Kotak Institutional Equities estimates Exhibit 2: Interim results of Tata Steel (standalone), March fiscal year-ends (Rs mn) (% chg.) 1QFY22 1QFY22E 1QFY21 4QFY21 KIE yoy qoq 2021 2020 (%chg) 2022E Net sales 207,983 209,487 93,388 212,026 (1) 123 (2) 648,690 604,359 7 1,180,893 Expenditure (109,273) (115,497) (80,877) (120,148) (5) 35 (9) (431,037) (455,744) (5) (687,570) Consumption of raw materials (45,233) (37,389) (25,162) (43,759) 21 80 3 (150,147) (189,701) (292,128) Stock adjustment 10,161 — (452) 1,043 (14,641) 5,644 — Employee costs (13,783) (14,202) (13,097) (13,526) (3) 5 2 (51,988) (50,366) (54,599) Other Expenditure (60,419) (63,907) (42,166) (63,907) (5) 43 (5) (187,919) (192,260) (303,291) EBITDA 98,710 93,990 12,510 91,878 5 689 7 217,654 148,615 46 493,323 Other income 2,642 1,898 1,212 1,898 39 118 39 6,379 4,041 10,745 Interest (6,685) (8,297) (9,083) (8,297) (19) (26) (19) (33,938) (30,310) (34,239) Depreciation (9,749) (10,410) (9,693) (10,410) (6) 1 (6) (39,873) (39,201) (52,199) Pretax profits 84,918 77,181 (5,054) 75,069 10 (1,780) 13 150,221 83,146 81 417,629 Extraordinaries 4,867 — 20,589 9,493 (76) 27,731 7,294 — Tax (21,985) (19,758) (3,602) (18,626) 11 510 18 (41,885) (23,002) (108,166) Net income 67,800 57,423 11,933 65,935 18 468 3 136,066 67,438 102 309,463 Adjusted net income 67,800 57,423 11,933 65,935 18 468 3 136,066 67,438 309,463 EPS

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