TATA STEEL : ACCUMULATE AT EVER LEVEL !!

Scrip Code: 500470 / TATASTEEL

CMP:  Rs. 318.70; Buy at every dips.

6 month Target – Rs. 346.63; STOP LOSS – Rs. 293.20; Market Cap: Rs. 30,952.62 Cr; 52 Week High/Low: Rs. 455.60 / Rs. 292.50. Total Shares: 97,12,15,229 shares; Promoters : 30,45,14,362 shares –31.35 %; Total Public holding : 20,03,36,150 shares – 68.65 %; Book Value: Rs. 537.64; Face Value: Rs. 10.00; EPS: Rs. 54.72; Dividend: 120 %; P/E: 5.82 times; Ind. P/E: 6.18; EV/EBITDA: 5.96.

Total Debt: 52,212.32 Cr; Enterprise Value: Rs. 73,454.86 Cr.

TATA STEEL LTD:  Tata Steel Limited was established by Mr. Jamsetji Nusserwanji Tata in 1907. It was formerly known as The Tata Iron and Steel Company Limited and changed its name to Tata Steel Limited in 2005. Tata Steel Limited is a diversified steel producer with an annual crude steel capacity of over 26.5 million tonnes per annum. It has a global presence in 50 markets and manufacturing operations in 26 countries. The company has over 80,000 employees across five continents and is among Fortune 500 Company. Tata Steel’s principals products include flat rolled products of Non-Alloy Steel of a width of 600 millimeter and hot rolled coils of thickness 1.66 millimeter; tubes/pipes of circular section with outer diameter up to 114.3 millimeter, not cold rolled & flat rolled products of iron or non-alloy steel of width of 600 millimeter or more, cold rolled (cold-reduced), not clad, plated or coated of a thickness of 0.5 millimeter or more but less than 3 millimeter. Company also provides steel for different industries, which include construction, automotive, aerospace, consumer goods, materials handling, energy and power, rail, engineering, ship-building, packaging, and security and defense. Tata Steel also manufactures and processes steel, which includes hot-rolled coil through to high-gloss, pre-painted perforated blanks, wire rod and wire, sections, plate, bearings and tubes.  Its major branded products are Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Pipes, Tata Bearing and Tata Agrico. In 20 October 2009, TATA STEEL won bid to acquire Anglo – Dutch steelmaker CORUS (A company formed through merger of British Steel and Konnklijke Hoogovens in October 1999) at $7.6 billion. On January 30, 2007, Tata Steel purchased a 100 % stake in the Corus Group at 608 pence per share in an all cash deal, totally valued at US$ 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group. In September 2010, Corus name was changed into TATA Steel Europe. In September 27th 2011, Tata Steel merged Centennial Steel Company Ltd with itself. In July 2012, the company sold its stake in HKS Scrap Metals bv to Euro Scrap Alliance. TATA STEEL’s production facilities include those in India, UK, Netherlands, Thailand, Singapore, China and Australia. TATA STEEL is locally compared with SAIL, JSW Steel, Jindal Steel and Power, VISA Steel and Rashtriya Ispat Nigam and globally with ArcelorMittal SA of Luxembourg, Hebei Iron and Steel of China, Wuhan Iron & Steel Co Ltd of China, POSCO of South Korea, Nippon Metal Industries Co.,Ltd of Japan, JFE Holdings Incorporated (Japan) & Angang Steel Company Ltd (Hong Kong), Sumitomo Metal Industries Ltd of Japan, Severstal of Russia and Hyundai Steel Company of South Korea.

Investment Rationale:

TATA STEEL LTD will amalgamate its listed subsidiary Tata Metaliks (TML) and its 100% subsidiary Tata Metaliks Kubota Pipes Ltd – a subsidiary of TML with itself. Tata Steel holds 50.09% stake in TML and shares held by them in TML will be extinguished and the public shareholders of TML will be issued shares of Tata Steel in the ratio of 4 equity shares of Rs. 10 each of Tata Steel for every 29 equity shares of Rs.10 each held in Tata Metaliks Ltd. This merger will help Tata steel in envisaging synergies through aligning the activities of single value chain with one legal entity. TML through constant up-gradation in technology and setting up its second mini blast furnace has enhanced its capacity of Pig iron from 90,000 tpa in 2004 to 3,50,000 tpa today. TML has recently commissioned a 40 m2 sinter plant at Kharagpur site to produce about 0.4 mtpa of sinter at a capex of Rs. 100 Cr. TML products are sold to foundries all over India. As far as Tata Metaliks Kubota Pipes ltd is concern it is a 100% unlisted subsidiary of Tata Metaliks Ltd and was established in 2007 as a JV between TML, Kubota (Japan) and Metal One (Japan) for producing ductile iron pipes used for water distribution mainly used by the infrastructure sector. Tata Steel Ltd has amalgamated Kalimati Investment Company Limited (KICL) with itself effective from January 1, 2013 after the requisite approvals and sanction being received including approvals and orders under Sections 391 - 394 of the Companies Act, 1956. Tata Steel India has recently undergone 2.9 mtpa brownfield expansion at Jamshedpur. It is planning 6 mtpa green-field expansion in Odisha in two phases of 3 mtpa each. It also has 80% stake in the DSO (Direct shipping ore) project in Canada, balance 20% stake is owned by New Millennium Iron Corporation (NML). Tata Steel has 27.4% in NML. Cumulatively, the capex of all the three projects is expected to be around Rs. 44,100 Cr. Tata Steel Europe has completed the BF 4 at Port Talbot after spending US$ 22.3 Cr. Tata Steel realized about 96 million tonnes in consideration during the first nine months ended December through the sale of or divestment of small-sized businesses to reduce complexity across multiple jurisdiction as part of the on-going portfolio management work at Tata Steel Europe. TATA Steel has recently issued SGD 300 million 4.95% Senior Unsecured Notes due for 2023. These notes are guaranteed by TATA Steel Ltd. These notes represent unsecure obligation of the isuer and will rank pari passu with all its existing future unsecured obligations. These notes will be listed on the Singapore Stock Exchange.

Outlook and Valuation:

Global steel capacity utilisation remains at 77% implies significant over capacity. Moreover, Sovereign debt issues and austerity measures in the Eurozone are hurting consumer sentiment and steel demand which remains the key enablers for improvement in the current scenario. While Indian economy and steel demand continues to grow, albeit at a slower pace, sentiment in China is improving on account of Government spending on infrastructure projects. However, a sceptical view on the demand outlook for steel products remains in near term. In Mozambique, Tata Steel is in the process of developing a coking coal mine and an iron ore mine in Canada to enhance integration levels of the company. The total capex remaining for the Mozambique project is US$100mn–150mn, while the Canadian project will involve capex of CAD350mn. These backward integration projects at Mozambique and Canada will boost the company's earnings beginning FY14. The Orissa project will benefit from captive iron ore, lower logistics cost and efficiencies of a modern plant. A ROE's of 15-20% for the project is expected. Tata steels’s long term strategy of building high margin 16 mtpa steel capacity in India is a big positive. The stock trades at 6.8 x FY14E EV/EBITDA valuation. After the recent correction in the stock over the last couple of months, Tata Steel is trading at a discount to its peers. The Indian business of Tata Steel is at a 5 x EV/EBITDA multiple at Rs. 476.88/share and the European business at 5 x at Rs. 252.6/share, is justified as the Indian operation is self-sufficient in terms of raw materials (100 % iron ore and 50 % coking) and deserves a decent premium vis-à-vis Corus, which is not self-sufficient. Stock continues to offer an attractive opportunity given the distress valuations of European operations & the strong domestic operations and increased raw material self-sufficiency from current 33 % to 50 % in iron ore and 18 % to 23 % in coking coal (by FY13 end). At the current market price of Rs. 318.70, the stock is trading at a PE of 8.70 x FY14E and 7.27 x FY15E respectively. The company can post Earnings per share (EPS) of Rs. 36.60 in FY14E and Rs. 43.80 in FY15E. One can buy TATA STEEL with a target price of Rs. 346.63 for Medium to Long term investment. 

SOTP valuation (FY2013E)

BUSINESS SUBSIDIARY	Value per Share(₹)
Core Business	476.88
Tata Steel Europe (5 x FY13E EV/EBITDA)	252.60
Jamshedpur 3mpta plant & Other projects.	178.00
Value of Other Subsidiaries	93.20
TOTAL VALUE	1000.68
Less:  Debt	654.05
TOTAL VALUE PER SHARE	346.63

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	132899.70	126382.70	153830.50	157542.30
NET PROFIT (₹ Cr)	2,027.90	2,346.80	3,556.60	4,250.50
EPS (₹)	20.90	24.20	36.60	43.80
PE (x)	18.20	14.20	10.40	8.70
P/BV (x)	0.90	0.90	0.90	0.80
EV/EBITDA (x)	7.00	8.10	6.80	5.70
ROE (%)	5.20	0.20	5.00	9.60
ROCE (%)	4.60	2.50	6.00	6.70

I would buy TATA STEEL LTD with a price target of ₹ 346.63 for Medium to Long term target. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 293.20 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold TATA STEEL LTD in my investment portfolio. 

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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TATA STEEL: CREATING A VALUE FOR NATION !!!

Scrip Code: 500470 / TATASTEEL

CMP:  Rs. 461.85; Buy at Rs.445 - Rs.455 levels.
6 month Target – Rs. 495; STOP LOSS – Rs. 418.60; Market Cap: Rs. 44,855.53 Cr; 52 Week High/Low: Rs. 619.00 / Rs. 332.10

Total Shares: 97,12,14,450 shares; Promoters : 30,45,14,362 shares –31.35 %; Total Public holding : 66,67,00,088 shares – 68.64 %; Book Value: Rs. 497.09; Face Value: Rs. 10.00; EPS: Rs. 70.46; Div: 120 % ; P/E: 6.55 times; Ind. P/E: 7.30; EV/EBITDA: 5.82.

Total Debt: 28,301.14 Cr; Enterprise Value: Rs. 80,273.78 Cr.

TATA STEEL LTD:  Tata Steel Limited was established by Mr. Jamsetji Nusserwanji Tata in 1907. It was formerly known as The Tata Iron and Steel Company Limited and changed its name to Tata Steel Limited in 2005. Tata Steel Limited is a diversified steel producer. It has a global presence in 50 markets and manufacturing operations in 26 countries. Tata Steel’s principals products include flat rolled products of Non-Alloy Steel of a width of 600 millimeter and hot rolled coils of thickness 1.66 millimeter; tubes/pipes of circular section with outer diameter up to 114.3 millimeter, not cold rolled & flat rolled products of iron or non alloy steel of width of 600 millimeter or more, cold rolled (cold-reduced), not clad, plated or coated of a thickness of 0.5 millimeter or more but less than 3 millimeter. Company also provides steel for different industries, which include construction, automotive, aerospace, consumer goods, materials handling, energy and power, rail, engineering, ship-building, packaging, and security and defense. Tata Steel manufactures and processes steel, which includes hot-rolled coil through to high-gloss, pre-painted perforated blanks, wire rod and wire, sections, plate, bearings and tubes.  Its major branded products are Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Pipes, Tata Bearing and Tata Agrico. In 20 October 2009, TATA STEEL won bid to acquire Anglo – Dutch steelmaker CORUS at $7.6 billion. On January 30, 2007, Tata Steel purchased a 100 % stake in the Corus Group at 608 pence per share in an all cash deal, totally valued at USD 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group. In September 27^th 2011, Tata Steel merged Centennial Steel Company Ltd with itself.  TATA STEEL’s production facilities include those in India, UK, Netherlands, Thailand, Singapore, China and Australia. TATA STEEL is compared with SAIL locally and with JFE Holdings Incorporated (Japan) & Angang Steel Company Ltd (Hong Kong) globally.

Investment Rationale:

Over the years, Tata Steel’s domestic operations have exhibited robust performance on the back of high raw material integration and superior product mix. Domestic steel product prices have increased by Rs. 1,500- Rs. 2,000/ton over the last three months, coupled with a decline in coking coal costs and higher volumes which would lead to margin expansion in Q4 FY12. The 2.9 metric ton per annum expansion is likely to be commissioned in April 2012 and would require some time to stabilize and integrate the whole complex. It is expected that the new capacity will contribute additional 1million tons of saleable steel each over the next two years. Stable steel prices, superior product mix coupled with lower coking coal prices YOY would lead to higher EBIDTA/ton in FY13. The standalone operation is expected to witness an EBIDTA CAGR of 20.6 % over FY12-14. This would generate nearly Rs. 16,200 Cr of operating cash flow over the same period and would fund major part of the capex for its Odisha steel project. The spot prices in Europe have recovered to US$70 - $80/ton since January. However, this would impact Tata Steel’s realisations only from March 2012, as any change in spot prices will impact Tata Steel’s realisation with a lag. It is expected that the realisations to increase by US$25/ton QoQ in Q4 FY12. And with an uptick in steel prices and a decline in raw material costs (both iron ore and coking coal), the company would post positive EBIDTA in Q4 FY12. However, the performance would be restricted by one-offs like impairment charges and restructuring costs. On the back of various restructuring process, revival in European demand and higher steel prices YoY, an EBIDTA/ton of US$50/ton in FY14 is accepted. After the stabilization in FY13, it is expected that the plant will add a further 1mtpa in FY14, leading to a volume CAGR of 15.8 % over the period FY12-14. Tata Steel India can deliver 1.73mn tons in Q4 FY12, 7.7mn tons in FY13 and 8.8mn tons in FY14. Besides exporting to few countries, the company targets to sell incremental steel in the domestic market. This would be in the niche market of value added products, where it is already among the leaders. Out of the total outlay of Rs. 16,000 Cr, the company has already spent Rs. 2,500 Cr of capex till date and is expected to spend Rs. 5,000 Cr in FY13E. The company has reduced its manpower from 7,223 to 6,683 at the end of December 2011 and is expected to reduce it further to 5,750 by FY12-end. It is expected that the EBIDTA/ton to be US$30/ton in Q4 FY12 and remain around this level for FY13. On the back of various restructuring processes initiated by the company in FY12 & revival in European demand and higher steel prices YOY, an EBIDTA/ton of US$50/ton in FY14 is accepted. Tata Steel recently reported its 4QFY2012 production and sales numbers; Company's 4QFY2012 crude steel production grew by 2.6 % YoY to 1.8mn tonnes and its sales volume grew by 3.3 % YoY to 1.7mn tonnes. For FY2012, the company's crude steel production and sales volume increased by 3.9 % and 3.4 % YoY to 7.1mn tonnes and 6.6mn tonnes, respectively. These numbers are broadly in-line with the market’s expectations. 

Outlook and Valuation:

Steel players in India had hiked flat steel product prices by Rs. 1,000/ton each since Jan 2012. However, due to subdued market conditions and some resistance from the consumers, the steel players have reduced prices over the last one month. In the case of long product category, the increase in steel prices has been steady and has been accepted by the market. Indian long steel prices has raised by Rs. 1,500 - 2,000/ton in Q4 FY12 due to improving demand from the infrastructure space and production cuts taken by the smaller players. On account of the high iron ore and coal costs, small steel players have taken production cuts as it has become unviable to them to operate. This would help the larger producers like Tata Steel in gaining market share and maintain prices at current levels. Steel prices will decline marginally during the year on the back of lower raw material costs and subdued demand. The impact of lower steel prices globally would be reduced due to the increase in import duty on HRC and the depreciation of the rupee against the dollar. The commissioning of new capacities during the year would also add to the pressure on steel prices in the domestic market. On an average, blended steel realization to decline 2 % YoY is expected in FY13 and then strengthens to 3 % YoY in FY14. The domestic operations would continue to be the earnings driver for Tata Steel over the next two years. Even though near term earnings in Corus would remain under pressure due to one-off items, it is expected that the Corus will deliver steady EBIDTA/ton over FY13-14. Tata Steel is expected to report strong earnings over the next two years due to the factors like the impact of new 2.9mtpa capacity, impact of restructuring exercise in Europe, like the benefits from overseas raw material projects. After the recent correction in the stock over the last six months, Tata Steel is trading at a discount to its peers. The Indian business of Tata Steel at a 6.5 x EV/EBITDA multiple and the European business at 4.5 x, is justified as the Indian operation is self-sufficient in terms of raw materials (100 % iron ore and 50 % coking) and deserves a decent premium vis-à-vis Corus, which is not self sufficient. Stock continues to offer an attractive opportunity given the distress valuations of European operations at EV/tone of US$200 & the strong domestic operations and increased raw material self-sufficiency from current 33  % to 50 % in iron ore and 18 % to 23 % in coking coal (by FY13 end). At the current market price of Rs. 461.85, the stock is trading at a PE of 17.83 x FY12E and 10.71 x FY13E respectively. The company can post Earnings per share (EPS) of Rs. 25.90 in FY12E and Rs. 43.10 in FY13E. One can buy TATA STEEL with a target price of Rs. 495.00 for Medium to Long term investment.

KEY FINANCIALS	FY11	FY12E	FY13E	FY14E
SALES (Rs. Crs)	1,18,753.10	1,28,344.10	1,23,146.60	1,32,914.20
NET PROFIT (Rs. Crs)	5,933.70	2,512.60	4,185.50	6,710.50
EPS (Rs.)	61.90	25.90	43.10	69.10
PE (x)	7.40	17.80	10.70	6.70
P/BV (x)	1.20	1.10	1.10	1.00
EV/EBITDA (x)	5.80	7.20	6.00	5.10
ROE (%)	20.30	6.60	10.10	15.10
ROCE (%)	8.70	4.40	6.40	9.00

I would buy TATA STEEL LIMITED with a price target of Rs. 495 for Medium to Long. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or Rs. 418.60 on every purchase.
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

Tata Steel Ltd : ACCUMULATE on every dip.

Scrip Code: 500470 / TATASTEEL

CMP:  Rs. 614; Buy at Rs.590 - 610.00;
Short term Target: Rs. 680.00, LT – Rs. 750;Market Cap: Rs. 58,895.76 Cr;52 Week High/Low: Rs. 737.00 / Rs. 449.10;Total Shares: 95,92,14,450 shares; Promoters : 29,34,92,790 shares –30.60 %; Total Public holding : 66,57,21,660 shares –69.40 %;Book Value: Rs. 388.24; Face Value: Rs. 10; EPS: Rs. 76.32; Div: 80 %;P/E: 8.05 times; Ind P/E: 11.44; EV/EBITDA: 8.29.

Total Debt: Rs. 27,287.73 Cr; Enterprise Value: Rs. 90,962.30 Cr.

Tata Steel Limited was established by Mr. Jamsetji Nusserwanji Tata in 1907. It was formerly known as The Tata Iron and Steel Company Limited and changed its name to Tata Steel Limited in 2005. Tata Steel Limited is a diversified steel producer. It has a global presence in 50 markets and manufacturing operations in 26 countries. The Company provides steel for different industries, which include construction, automotive, aerospace, consumer goods, materials handling, energy and power, rail, engineering, shipbuilding, packaging, and security and defense. Tata Steel manufactures and processes steel, which includes hot-rolled coil through to high-gloss, pre-painted perforated blanks, wire rod and wire, sections, plate, bearings and tubes.  Its major branded products are Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Pipes, Tata Bearing and Tata Agrico. On 20 October 2009, TATA STEEL won bid to acquire Anglo – Dutch steelmaker CORUS at $7.6 billion. On January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, totally valued at USD 12.04 Billion. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.

Domestic operation to remain out performer

Tata Steel India has been showing robust performance and the management is very confident that it would continue to out performer with lower cost of production due to good backward integration and strong growth in domestic demand. The company should see a volume of 1.68 million tonnes during Q4FY11. For FY12 it expects a volume of 6.8 mt from the domestic operation, which suggests the 2.9 mtpa brown field expansion in Jamshedpur to add primarily to FY13 volume. The expansion project is on track and the blast furnace is likely to be commissioned by August 2011 itself. Orissa project also has been kicked off with basic civil works etc. Tata Steel has been focusing to increase its market share in value added categories. JV with Nippon Steel and Bluescope steel, setting up of CR mill in Tinplate Company etc are steps in that direction.

Overseas operations likely to stabilize going forward

Concerns still remain on the overseas operations especially in the South East Asian markets. Low difference between scrap and rebar prices has been a concern for Nat Steel, while lack of major spending by the government, political stability along with higher raw material costs have been putting pressure on Thailand operations. The management however feels things to be stabilized in the coming quarters. TSE on the other hand should not see much improvement in EBITDA/ tonne during Q4FY11, however, the incremental impact of the price hike should help it to post much better numbers during Q1FY12. For FY12 TSE is likely to post a volume of 15 mt.

Riversdale mining has been a strategic investment for Tata Steel. The company currently has 27.1% stake in Riversdale which is valued at Rs.4796 Cr (Rs.50/sh) and is not in the process of selling any stake. New Millennium DSO project is likely to start operation in Q2FY12. In FY13 the company is likely to get 2 mt iron ore. Consolidated debt position remains above US$11bn and the management does not expect that amount to go up significantly. Further money rising of Rs 2000- 2500 Cr can be done through (click) perpetuity bonds.

Outlook and Valuations

At the CMP of Rs. 614, the stock is trading at 8x its FY12E EPS and 5x FY12E EV/ EBITDA. It is believed that the domestic operation would continue to perform well due to better demand and stronger backward integration. On the overseas subsidiaries, the value of domestic operation comes at 6.5x FY12 EV/ EBITDA and overseas subsidiaries at 4x FY12 EV/ EBITDA to reach a fair value of Rs 695/ share. Domestic operations to be the backbone for the company due to better backward integration and strong demand growth expected in India. Price hike during January to March period across different product categories in various stages should improve the EBITDA/ tonne for Q4FY11. Concerns remain on overseas operations due to higher costs. Volume is likely to be higher from Tata Steel Europe (TSE), however, not for the South Asian operations. Factoring in the concerns the FY11 and FY12 EPS comes to Rs 58.7 and Rs 62.0 respectively. Target price to Rs 695/ share; A ACCUMULATE on the stock.

KEY FINANCIALS	FY09	FY10	FY11E	FY12E
SALES (Rs. crs)	1,47,329.3	1,02,393.1	1,13,064.8	1,20,086.7
NET PROFIT (Rs. crs)	9,045.4	(643)	6,068	6,405
EPS (Rs.)	104.1	(6.8)	58.7	62.0
PE (x)	4.4	--	10.8	10.3
P/BV (x)	1.6	2.4	1.8	1.4
ROE (%)	26.4	--	18.8	16.0
ROCE (%)	13.7	--	9.7	9.9

I have accumulation status on TATASTEEL with the price target of Rs. 680 in short term. For long term my target is of Rs.750. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.