Religare Capital has downgraded Tata Steel (TATA) to 'Sell' from 'Hold' after the company declared its second quarter results. The stock broker fixed price target at Rs 195.

Commenting on the results, Religare Capital said, ''TATA's consolidated second quarter results missed estimates. Earnings before interest, taxes, depreciation and amortization (EBITDA) were down 34% to Rs 18.3 billion on European Union (EU) losses, even as India business outperformed. PAT at Rs 21.9 billion (+100% YoY) was boosted by several one-offs. However, an uncertain timeline on turning the EU business EBITDA-positive and a likely decline in domestic steel prices in Q3 is worrisome.''

Commenting on the investment rationale, the stock broker said,  ''A sharp recovery would require strong Chinese supply discipline or widening the safeguard net. Sharp net debt reduction over the next two quarters looks unlikely as an India EBITDA of Rs 82 billion (Rs 9,000/t at 9.2mt) and EU EBITDA of Rs 12 billion in FY16 would help Tata meet capex and interest outgo of only Rs 100 billion and Rs 42 billion-43 billion.

Uncertainty over turning EBITDA-positive and sale/shutdown of long product units remain as key overhangs. Downgrade to Sell from Hold with a Sep'16 TP of Rs 195 (Rs 280).Domestic demand recovery and widening of the safeguard net could emerge as key triggers.''

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