Global research firms tag ‘Outperform’ rating on Tata Steel, expect up to 32% return

Global research firm Credit Suisse has maintained an outperform rating on Tata Steel with a target of Rs 860. The house is of the view that the Bhushan Steel bid implies EV at 6x adjusted EBITDA adding that the valuation is not cheap, but with steel cycle picking up, the deal can be EPS accretive. The firm also said that minor working capital plus capex would be needed for the asset.

Macquarie has also maintained an outperform rating on Tata Steel with target of Rs 800. The house feels that the Bhushan Steel bid appears 10–15 percent higher than expectations and sees Bhushan assets as an attractive strategic fit.

The firm is of the view that assets offer growth optionality and attractive strategic fit while valuations need to evaluate factors beyond headline capacity.

“The stock correction on headline bid provides a buying opportunity,” it added.

Tata Steel’s capital structure is set to change, which should help ease the burden of this transaction. A rights issue is under way to raise Rs12,800 crore and once the European steel business moves to a joint venture with Thyssenkrupp, the debt related to this business will also be lower. That should give Tata Steel breathing room for the increase in debt because of these acquisitions.

At 10:23 hrs Tata Steel was quoting at Rs 645.00, down Rs 5.75, or 0.88 percent. It has touched an intraday high of Rs 655.40 and an intraday low of Rs 642.50.moneycontrol