Tata Steel’s consol revenues at Rs290.9bn improved on account of higher realisations (up 19% YoY) and improved product mix, despite 7% YoY decline in volumes. Consequently EBITDA grew by 16% YoY to Rs34bn and blended EBITDA/t was at USD122 vs. USD112 in Q3FY10. Adjusted PAT was up by 139% at Rs100bn.

Tata Steel India (TSI): EBITDA/t at USD387 was up 15% YoY and 10% QoQ due to better realisations (14% YoY growth), volume growth (3% YoY), improved product mix, and cost efficiencies.

Project status: 2.9mntpa brownfield expansion in India on schedule for completion by H2FY11 would result in higher share of more profitable Indian ops in the consol. earnings (FY11 EBITDA/t USD382 TSI. vs. USD141 Consol.)

Tata Steel Europe (TSE): Sales volume declined 8% YoY to 3.5mnt, consequently EBITDA/t declined to USD25 (USD38 in Q3FY10 and USD56 in Q2FY11) also impacted by higher material costs despite a 17% YoY improvement in realisations.

Raised Rs34.8bn via FPO for part-funding of capex at Jamshedpur and ebenture repayment in FY12.

Cash and Debt: Consol. debt of USD13.22bn and cash of USD1.4bn; raised USD1.3bn in 9MFY11. Plans to raise USD500mn via perpetual bond route.

Received environmental clearance for DSO project in Canada; mining to start in Q2CY12.

Q4FY11 contract prices settled at higher level due to spike in spot prices. Coking coal spot price continues to strengthen, as floods in Australia disrupt supply. TSI being a fully integrated player would benefit from increased steel prices. However, TSE would face cost pressure on steel processing margins going forward, which we believe would be restricted in Q4FY11 due to low cost coking coal inventory. Moreover, ArcelorMittal's better than expected Q4CY10 results and strong guidance for CY11 gives us confidence in European recovery.

We expect Tata Steel’s profitability to improve FY12 onwards on commencement of RM integration at TSE, higher share of Indian operations to consol. results with 2.9mnt additional capacity, improved capital structure and recovery at Europe. At 4.8x FY12E EV/EBITDA, the stock is attractively valued. Maintain ‘BUY’ with a target price of Rs817 (blended 6.1x FY12E EV/EBITDA)