Tata Steel - Turning Over A New Leaf: ICICI Securities

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ICICI Securities Report

Tata Steel ltd. has announced deep restructuring of its UK operations (Tata Steel UK) with twin objectives of business continuity and sustainability. Key points:

1. Existing blast furnaces to be replaced by three million tonnes per annum electric arc furnace;

2. 40% of £1.25 billion investment to be funded through the grant by the UK government;

3. cost differential of £150-170/tonne compared to current operations;

4. possible emission reduction to 0.4 total carbon-di-oxide/tonne from the current level of 2.16 tCO2/tonne at UK operations; and

5. setting up of EAF may complement the scrap ecosystem in the UK.

In our view, the development assumes significance as support from parent for Tata Steel UK operations is likely to reduce in future.

As a result, we raise our valuation multiple to six times (earlier 5.5 times), resulting in a revised target price of Rs 150 (earlier Rs 135). Maintain 'Add'.

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