Why Morgan Stanley is bullish on Tata Steel despite write-down

Morgan Stanley is overweight on the stock as the company is bringing about

FP Editors December 21, 2014 02:23:07 IST
Why Morgan Stanley is bullish on Tata Steel despite write-down

Tata Steel shares have reacted negatively to the news that the company will

book a $1.6 billion non-cash impairment charge for 2012-13 due to weak

economic and market conditions in Europe.

At 13:32 p.m, the stock was down 0.02 percent at Rs 305.

Why Morgan Stanley is bullish on Tata Steel despite writedown

Morgan Stanley expects the company to witness sizeable growth in earnings and improvement in return on equity driven by growth in volumes in India. Reuters

According to Morgan Stanley, though the impairment charge was expected the

quantum is higher. And so it expects the stock to react negatively in the

neat term.

However, the poor state of Tata Steel's European operations is known, the market has more or less factored in much of the negative news on this front.

"Not surprisingly, despite having a 10 mt plant in India that enjoys global

cost leadership and is witnessing fast growth, Tata's stock has underperformed the Sensex by more than 25 percent YTD," the brokerage said

in a note.

Morgan Stanley is overweight on the stock as the company is bringing about

structural changes.

"Sharply growing Indian operations and shrinking European operations should

buttress profitability and return ratios over medium term," the note said.

In India, Tata Steel has better competitive advantages as almost all its

peers have been negatively impacted due to the regulatory developments such

as restrictions on iron ore mining.

Tata Steel, however, continues to maintain its low cost structure. Morgan

Stanley expects the company to witness sizeable growth in earnings and

improvement in return on equity driven by growth in volumes in India.

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