We expect Tata Steel's EBITDA to grow at 48% CAGR over FY10-12, driven by its profitable Indian operations, turnaround at Tata Steel Europe (TSE), improved capacity utilization, leaner cost structure, partial resource integration, and improving steel profitability. We expect Tata Steel's consolidated net profit to be Rs62.2bn in FY11 and Rs72.7bn in FY12. We find the stock attractively valued at 4.9x FY12E EV/EBITDA.

What will move the stock?
1) Improved profitability of Tata India with better demand and lower raw material prices; 2) Easing of high financial leverage with recent debt restructuring at Tata Steel Europe, capital raising of Rs70bn recently approved; 3) Improved fundamentals of TSE notwithstanding a weak Q3FY11E; 5) Progress on raw material integration in TSE; and 6) Brownfield expansion of 2.9mn tonnes at Jamshedpur as per schedule.

Where are we stacked versus consensus? Our FY12 consolidated estimates are almost in line with consensus. We value Tata Steel using SOTP methodology at Rs759.

What will challenge our target price?
1) Lower steel profitability on correction in steel prices and/or significant rise in input costs; 2) Weak recovery in Europe leading to lower capacity utilization and sustained subdued profitability at Tata Steel Europe; 3) Delay in brownfield expansion; and 4) Delay in resource integration.