IIFL Institutional Equities, a part of the IIFL Group, one of the leading players in the Indian financial services space, recommends “Add” Tata Steel.

According to IIFL report, Tata Steel’s 4QFY12 profit of Rs4.3bn, although lower than consensus estimates, surprised us positively on better-than-expected performance of the subsidiaries. After a challenging year, Tata Steel Europe’s (TSE) profitability is set to improve on the back of lower raw material cost and higher realisations.

The Indian operations would gain from 17% volume growth and rupee depreciation. Earnings will also receive a boost from the recently commissioned Benga coal project.

Amid improving short-term earnings outlook, macro-economic challenges, especially in China, cloud medium-term prospects. At 5.9x FY13ii EV/Ebitda, we believe the concerns are fairly priced in. ADD, brokerage added.

The report was published by IIFL’s Institutional Equities Research desk.