SHRIRAM TRANSPORT FINANCE COMPANY LTD : BET ON THIS ONE !!!

Scrip Code: 511218 / SRTRANSFIN

CMP:  Rs. 815.65; Buy at current levels. Medium to Long Term Target: Rs. 860; STOP LOSS – Rs. 750.40; Market Cap: Rs. 18,504.15 Cr; 52 Week High/Low: Rs. 842.70 / Rs. 495.20. Total Shares: 22,68,63,936 shares; Promoters : 5,85,02,778 shares –25.79 %; Total Public holding : 16,83,61,158 shares –74.21. %; Book Value: Rs. 190.05; Face Value: Rs. 10.00; EPS: Rs. 42.49; Dividend: 65.00 %; P/E: 19.19 times; Ind. P/E: 16.73; EV/EBITDA: 6.32.

Total Debt: 17,727.08 Cr; Enterprise Value: Rs. 32,390.05 Cr.

SHRIRAM TRANSPORT FINANCE COMPANY LTD: The Company was founded on 30th June 1979 and is based in Mumbai, Maharashtra. The Company is the flagship company of the Shriram Group. The main object of the company was to provide hire purchase finance to trucks. In February of 1984, company issued 1,80,000 shares at par to the general public. Shriram Transport Finance Company Limited operates as an asset financing non-banking finance company that provides commercial vehicle finance in India. It offers finance for pre-owned and new commercial and passenger vehicles, tractors, three wheelers, multi-utility vehicles, and pre-owned and new construction equipment. The company also provides tire loans, engine replacement loans, working capital loans, co-branded credit cards, and freight bill discounting products, as well as accepts various deposit products. In addition, it owns, operates, and manages Automall, a physical auction platform for pre-owned commercial vehicles; and sells refurbished commercial vehicles. The company serves small truck owners and first time users. As of May 08, 2012, the Company had a network of 528 branches and service centers. The company employees nearly 12000 people and has Asset Under Management (AUM) of more than Rs. 52,717 Cr. Company has more than 6,00,000 customers. The company is compared locally with M&M Financial Services ltd, Sunderam Finance, Manappuram Financial, Bajaj Finance Ltd, GIC Housing Financial and Globally with Aeon Thana Sinsap (Thailand) Public Company Ltd of Thailand, Zenkoku Hosho Co Ltd of Japan, Hitachi Capital Corporation Ltd of Japan.

Investment Rationale:

Shriram Transport Finance co. Ltd is a part of Shriram Group, a prominent player in commercial vehicle financing business, chit funds, consumer finance, life insurance, general insurance, stock broking, property development, project engineering and IT. In February 2013, Sanlam Emerging Markets Ppty Ltd, a unit of Sanlam Ltds Sanlam Life Insurance Ltd, raised its stake to 10% from 6.3%, by acquiring a 3.7% stake in the Company. This deal augments Sanlam’s existing portfolio of business in Africa & Asia, in support of the group’s target of sustainable value creation in these growth markets. It further strengthens the existing relationship between Shriram & Sanlam. Last year Sanlam invested R2 billion in Shriram Capital Ltd the holding company of financial services of Shriram Group. Sanlam Emerging Markets holds 26% in SCL. In May 2013, Piramal Enterprises Ltd acquired a 10% stake in Shriram Transport Finance Co Ltd. Piramal bought 2.28 Cr shares at Rs. 723 per share of the company worth Rs. 1,652 Cr from a private equity major TPG. This deal was in-line with Piramal’s strategy for building their presence in financial services sector. This deal is positive for Shriram Transports, if it gets a banking licence, the stock can double from current level. At the end of March 2013 the company had total Assets under Management (AUM) of Rs. 49,676 Cr segmented into Pre-Owned CV of approximately Rs. 39,828 Cr and into New CV of approximately Rs. 9,527 Cr and approximately Rs. 321 Cr from others services. Valuation skills is critical to succeed in this space given that the amount of loan EMI and truck operator’s ability to repay rests on the value of the truck and Shriram has considerable expertise in valuation of pre own trucks. They value vehicles in to Old Commercial Vehicle and New commercial Vehicle – the Loan to Value Ratio for the Old CVs ranges from 60 % -  70 % and for new CVs it ranges from 75 % - 85 %. Experience in credit appraisal & recovery/collection operations has lead Shriram Transport Finance to become one of the leading organized players in the sector. Due to the underdeveloped banking habits of small truck operators, a large part of monthly collections is in the form of cash also the company have continuous monitoring of disbursed loans so that loan recovery process becomes easier. Company’s Capital Adequacy ratio as of March 31, 2013 stands at 20.58 %. Shriram Transport securitized its loan book at regular basis to fund new origination's which helps in maintaining its growth momentum. Company’s Securitized assets portfolio at the end of FY13 stands at Rs. 18,232 Cr at the end of FY13.

Outlook and Valuation:

The Commercial Vehicle Financing market size is of Rs. 1,85,000 Crs & Shriram Transport Finance Company Limited (STFC) is one of the largest assets financing NBFC with approximately 25 % market share in pre-owned and approximately 5-6 % market share in new truck financing. Strategically present in high yield - pre-owned CV financing with expertise in loan origination, valuation and collection. The company has expanded product portfolio which to include financing of tractors, small commercial vehicles, 3-wheelers, passenger commercial vehicles and construction equipment Large customer base in excess of 9,50,000 as of March 31, 2013. The company has an extensive distribution network of 539 branch offices, 350 rural centres and has partnership with over 500 Private Financiers. The company has tied up with Axis Bank to distribute credit cards to small truck owners and has so far distributed over 3,00,000 credit cards as of March 31, 2013. It is expected that due to legislative pressure on banning trucks beyond 15 years is likely to trigger replacement boom backed by the introduction of Voluntary Retirement Scheme for old trucks with better financing options by the Transport associations. It is expected that this will trigger an replacement demand for 13,50,000 new as well as pre owned trucks. The Passenger Commercial Vehicle Financing market size is estimated to be at Rs. 24,000 backed by the growth in population and an improving road infrastructure, also the tractor financing market is estimated to be at Rs. 30,000 Cr in FY13 and which is witnessing a strong growth. Shriram Transport through its wholly owned subsidiary Shriram Equipment Finance Company would focus on end to end equipment financing. The Construction Equipment financing market is expected to reach over Rs. 40,000 Cr by 2013 end driven by the huge infrastructure spending during the 11th 5-year plan which is estimated to be at approximately Rs. 20 trillion. Shriram transports has 21 Automalls in operation currently & plans to create 50-60 more Shriram Automalls where it provides platform to facilitate buyers & sellers to meet for sale of pre-owned CVs, these automalls earns commission fees through its advisory services and also will provide financing to the buyer. These 21 automalls sold over 75,000 assets so far. The company posted its Q4 FY13 consolidated Total Income of Rs. 1908.05 Cr a growth of 21.1 % YOY, with a PAT of Rs. 383.46 Cr showing a growth of 16.6 % YOY. The Net Interest Income including income from securitization raised 12.8 % to Rs. 952.10 Cr YOY. Growth in total income was driven by growth across key revenue streams; company’s Interest Income was up by 43.1% to Rs. 1,310.36 Cr from Rs 915.82 Cr. Its operating profits grew by 14.3% to Rs. 745.89 Cr from Rs. 652.88 Cr. Its standalone PAT grew by 15.3% to Rs. 355.23 Cr from Rs. 308.06 Cr due to decrease in provisioning cost by 19 basis point. Company’s Gross NPAs & Net NPA stood at 3.20% & 0.77% as against 3.06 % & 0.44 % respectively and the Net NPA in absolute amount stands at Rs. 241.64 Cr maintaining its Coverage ratio of over 76%. At the current market price of Rs. 815.65, the stock is trading at 12.86 x FY14E EPS of Rs 63.39/share and at 12.13 x FY15E EPS of Rs 67.20/share. With the large institution investors coming in and with the introduction of Automalls and the with the increasing replacement demand for the trucks and with the better recovery of loans Shriram transport  looks a good stock to buy at current levels with a medium to long term target of Rs. 860 

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	5,889.70	6,461.38	6,978.30	7,536.56
NET PROFIT (₹ Cr)	1,257.45	1,357.50	1,438.18	1,524.47
EPS (₹)	55.56	59.83	63.39	67.20
PE (x)	12.42	11.70	9.60	11.32
P/BV (x)	2.61	2.40	2.00	1.60
EV/EBITDA (x)	6.44	5.67	5.03	5.40
ROE (%)	20.98	20.80	20.11	20.20
ROCE (%)	18.42	18.60	18.51	18.40

I would buy SHRIRAM TRANSPORT FINANCE COMPANY LTD with a price target of ₹ 860.00 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 ₹ 750.40 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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BHARTI AIRTEL LTD : DONT MISS THIS CALL !!!

Scrip Code: 532454 / BHARTIARTL

CMP:  Rs. 312.05; Buy at current levels.

Medium to Long Term Target: Rs. 345; STOP LOSS: Rs. 287.08; Market Cap: Rs. 1,18,501.19 Cr; 52 Week High/Low: Rs. 370.60 / Rs. 215.80.

Total Shares: 379,75,30,096 shares; Promoters : 260,11,27,176 shares –68.49 %; Total Public holding : 119,64,02,920 shares – 31.51 %; Book Value: Rs. 130.16; Face Value: Rs. 5.00; EPS: Rs. 13.42; Dividend: 20.00 %; P/E: 23.25 times; Ind. P/E: 24.82; EV/EBITDA: 7.39.

Total Debt: 69,023.2 Cr; Enterprise Value: Rs. 1,88,263.89 Cr.

BHARTI AIRTEL LTD: The Company was founded on July 7, 1995 and is based in New Delhi, India. The company was formerly known as Bharti Tele-Ventures Limited and changed its name to Bharti Airtel Limited in April 2006. In January 28, 2002, Company came out with the IPO of 18.35 Cr equity shares of face value of Rs. 10 each at a floor price of Rs. 45.00 per share and raised Rs. 834 Cr. These shares were listed on 15th February 2002 on NSE-BSE at 11 % premium to its issue price of Rs. 45.00. Bharti Airtel Limited provides telecommunication systems and services in India, south Asia, and Africa and 20 other countries across rest of Asia and Africa. The company’s Mobile Services segment offers GSM mobile services; and post-paid, pre-paid, roaming, Internet, m-commerce, and other value added services. This segment also offers 2G services; 3G services such as mobile TV entertainment, video calls, live streaming of videos, high definition gaming, as well as Internet access; and 4G services comprising content, super fast access to high definition video streaming, multiple chatting, and instant uploading of photos. The company’s Telemedia Services segment provides voice and data communications through fixed network and broadband technology for small and medium size business customers. Its Digital TV Services segment offers digital broadcasting services under the Direct-to-home platform. The company’s Airtel Business segment provides end-to-end telecom solutions, such as data and voice, network integration, managed services, enterprise mobile applications, and digital media to large enterprise, government, small and medium businesses, and carrier customers. Its Passive Infrastructure Services segment engages in setting up, operating, and maintaining wireless communication towers. In addition, the company provides fixed line voice and data solutions, and high speed broadband Internet services through direct subscriber line, IPTV, and Direct-To-Home under the Airtel brand. As of June 30, 2012, it served approximately 257 million customers. In April 2013, company signed an Indefeasible Right to Use (IRU) Agreement with Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. The company is compared locally with Idea cellular Ltd, Reliance Communication, Tata Communication ltd and globally with Vodafone Group Plc. of London, AT&T Inc. of USA, Verizon Wireless of USA, America Movil of Mexico, MTN Group of South Africa, China Unicom of China, China Mobile of China, Telenor Group from Norway, Telefonica of Spain, Orange Telecom of France, T- Mobile of Germany, Telia Sonera of Sweden, MTS of Russia, VimpelCom of Russia, Sing Tel of Singapore, Axiata Group Berhad of Malaysia,  Saudi telecom company of Saudi Arabia, Etisalat of UAE.

Investment Rationale:

Bharti Airtel is amongst top four mobile service providers globally in terms of subscriber base. It has over 27.1 Cr customers across its operation at the end of March 2013. Recently on 4th May 2013, Bharti Airtel signed an agreement with Qatar Foundation Endowment under which Bharti will issue 19,98,70,006 new equity shares at a price of Rs. 340 per share to QFE representing a shareholding of 5% in the company post issuance. This investment deal will further strengthen the capital structure and will provide further flexibility for Bharti to deliver on its growth strategy. Goldman Sachs advised QFE on the deal. On 23rd April 2013, Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), the only pan India operator with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU) Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. This i2i connects India to Singapore. The state of the art cable consists of eight fiber pairs using DWDM, capable of supporting multiple terabits of capacity per fiber pair. Its landing points are at Chennai in India and Tuas in Singapore. This high speed link will enable Reliance Jio & Bharti to extend thier network and service reach to customers across Asia Pacific region. It will connect both the company’s directly to the world’s major business hubs and ISPs, thereby, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers. Bharti’s data business is picking up in India and Africa, So increased composition of data in the total business is expected to improve the Average Rate per User and the Average Rate per Minute. Data consumption continues to grow 20% every quarter and has reached 24 billion MBs during Q4FY13 and now contributes around 6.5% of the total mobile revenues as against 5.7% in Q3FY13. The company had 4.35 Cr data (mobile Internet) customers, of which 64 lakhs used 3G data services.

Outlook and Valuation:

BHARTI AIRTEL’s Data ARPU came in at Rs. 55.00 aided by average data download of 187 MB per user per month (an increase of 26 MB per user over previous quarter), and blended data realization rate being stable at 29.27 paisa per MB. Data ARPU of Rs 55 is very low compared to global standards. So it is expected to see data as the major growth driver in the quarters ahead. Operational metrics of India thus are set to improve further, while the Africa would also improve. Thus a margin improvement despite higher operating expenses could be seen. Regulatory uncertainties would continue to prevail, but it is believed that overall, the telecom Industry should be studied in isolation as the regulatory hindrances have become part of the telecom ecosystem. Nevertheless the short term pressure on profitability would remain considering the potential regulatory payments that needs to be made in the form of one time spectrum charges and the penalty due to 3G roaming arrangement that the company has entered into with other incumbents (if the TDSAT gives an adverse verdict on this front), especially at a time when the competitive intensity has again peaked due to which the operating costs may increase. The fair value of BHARTI AIRTEL comes at Rs. 345.69/share, with the valuation of its investments in subsidiaries coming at Rs. 183/share. At the current market price of Rs. 312.05 - the stock is trading at 30.59 x FY14E EPS of Rs 10.20/share and at 19.50 x FY15E EPS of Rs 16.00/share. Based on last quarterly result and some of the underlying trends, one should not expect significant changes to domestic operational forecasts but African margins perhaps need to be scaled back further. Below the EBITDA line, expect more downgrades due to tax and interest, but hopefully the stock is reaching the end of a long 3-year downgrade cycle, hence the stock could be a buy at current levels with a medium to long term target of Rs. 345.69.

SOTP valuation (FY2014E)

BUSINESS SUBSIDIARY	Value per Share(₹)
Domestic Business	289.65
Zain Africa operations (7 x FY14E EV/EBITDA)	2.00
Bharti Infratel Tower Business (20% disc to CMP)	54.35
Value of Other Subsidiaries	183.00
TOTAL VALUE	529.00
Less:  Debt	183.31
TOTAL VALUE PER SHARE	345.69

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	71,451.00	80,311.20	87,287.80	95,703.90
NET PROFIT (₹ Cr)	4,259.40	2,275.80	3,866.30	6,077.70
EPS (₹)	11.20	6.00	10.20	16.00
PE (x)	28.20	52.90	31.10	19.80
P/BV (x)	2.40	2.40	2.20	2.00
EV/EBITDA (x)	7.80	7.40	6.60	5.40
ROE (%)	8.40	4.50	7.10	10.10
ROCE (%)	8.40	7.30	8.20	10.20

I would buy BHARTI AIRTEL LTD with a price target of ₹ 345.69 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 ₹ 287.08 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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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. 

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RELIANCE INDUSTRIES LTD : CASHING IN FROM CONSUMPTION GROWTH STORY !!!

Scrip Code: 500325 / RELIANCE

CMP:  Rs. 802.90; Buy at current levels.

Medium to Long Term Target: Rs. 840.50; STOP LOSS – Rs. 738.66; Market Cap: Rs. 2,35,731.44 Cr; 52 Week High/Low: Rs. 955.00 / Rs. 673.05.

Total Shares: 322,86,63,382 shares; Promoters : 146,39,41,357 shares –45.34 %; Total Public holding : 176,47,22,025 shares –54.65. %; Book Value: Rs. 504.62; Face Value: Rs. 10.00; EPS: Rs. 64.84; Dividend: 85.00 %; P/E: 12.38 times; Ind. P/E: 13.84; EV/EBITDA: 10.36.

Total Debt: Rs. 72,427 Cr; Enterprise Value: Rs. 2,26,132.44 Cr.

RELIANCE INDUSTRIES LTD: The Company was founded on 11th February 1966 by name of Reliance Textile Industries Pvt Ltd in Mumbai, Maharashtra. In November of 1977, the promoters Mr. Dhirajlal H Ambani & Mr. Natvarlal H Ambani along with some other existing shareholders offered for sale at par 28,20,000 equity shares to the public to get listed on Bombay Stock Exchange. In June 27th of 1985, company again changed its name from Reliance Textiles Industries Ltd to its current name Reliance Industries Ltd. Reliance Industries Limited (RIL) is a conglomerate with business in the energy and materials value chain. RIL together with its subsidiaries, primarily engages in the exploration and production of oil and gas in India and worldwide. The company operates two refineries and owns 1.24 million barrels per day of crude processing capacity. The Company operates in three segments: Petrochemicals, Refining and Oil & Gas segments. The Petrochemicals - includes production and marketing operations of petrochemical products namely, polyethylene, polypropylene, polyvinyl chloride, poly butadiene rubber, polyester yarn, polyester fiber, purified terephthalic acid, paraxylene, ethylene glycol, olefins, aromatics, linear alkyl benzene, butadiene, acrylonitrile, caustic soda and polyethylene terephthalate. The Refining - includes production and marketing operations of the petroleum products. The Oil and Gas - includes exploration, development and production of crude oil and natural gas. Its other segment includes Textile, Retail business, Special Economic Zone (SEZ) development and Telecom / Broadband business. RIL, during the fiscal year ended March 31, 2012; increased its interest to 18.53% in EIH Limited. The company is compared locally with HPCL, BPCL, Mangalore Refinery, Chennai Petroleum Corp. Ltd, and Globally with Exxon Mobil Corp and Chevron Corp both from USA; Royal Dutch Shell PLC from Netherlands; BP from UK; Endesa SA from Spain; Rosneft Oil, Lukoil and Gazprom Oao both from Russia; RWE AG and E.On AG both from Germany; China Petroleum & Petro China Corp both from China; Total SA from France; Petrobrass Brasileiro from Brazil.

Investment Rationale:

Reliance Industries Ltd (RIL) is one of the India’s most valued private sector company but its current earnings supports the fact that it is not interested in investing its whopping Rs. 82,980 Cr cash in its core business anymore. This is proven by the fact that its FY12-13 Net profit of Rs. 21,003 Cr had a contribution of around Rs. 7,981 Cr or 38% earned as an interest from the cash pile that RIL had been hoarding from past couple of years. RIL is now concentrating more on its non-core businesses and among them is Retail and Telecom which will directly allow RIL to participate and take advantage of India’s consumption growth story. Reliance Jio Infocomm Limited (RJIL), a subsidiary of Reliance Industries Limited (RIL), the only pan India operator with Broadband Wireless Access (‘BWA’) spectrum across 22 circles capable of offering fourth generation (4G) wireless services signed a Indefeasible Right to Use (IRU) Agreement with Bharti Airtel Limited, under which Bharti will provide Reliance Jio with data capacity on its i2i submarine cable. This i2i connects India to Singapore. The state of the art cable consists of eight fiber pairs using Dense Wavelength Division Multiplexing, capable of supporting multiple terabits of capacity per fiber pair. Its landing points are at Chennai in India and Tuas in Singapore. The high speed link will enable Reliance Jio to extend its network and service reach to customers across Asia Pacific region. It will connect Reliance Jio directly to the world’s major business hubs and ISPs, thereby, helping the operator to meet the bandwidth demand and provide ultra-fast data experience to its customers. Recently, Reliance Jio has formed a consortium with five companies Viz, Telekom Malaysia Berhad, Vodafone Group, Omantel, Etisalat and Dialog Axiata to construct & maintain an 8,000 Km long Bay of Bengal Gateway submarine cable system this will connect India, Sri lanka Malaysia, Singapore and West Asia. This cable system will link all these countries with 100 Gbps technology and will help Reliance Jio in making its network more robust and cost effective, which means lower 4G cost for subscribers. This system may also gain access in international 4G standards- FDD-LTE which is currently unavailable in India as the only 4G band available in India is TD-LTE. RIL’s another prominent subsidiary - Reliance Retail LTD, showed strong growth in sales from 7% to 18% in same store sales format and that also in such a competitive and challenging environment. It currently has a pan India presence with a store count of 1,466 totaling to 9 million sqfts spread across 129 cities and will be soon adding 184 stores more by the end of this fiscal. Reliance Retail has Reliance One loyalty program which has about 13 million members and contributes about 65 % of sales from these loyal customers. These stores every week have footfalls of 25 lakhs. Reliance Retail’s business crossed Rs. 10,800 Cr revenue mark with a growth of 42% YoY as against Rs. 7,599 Cr in FY12. It posted EBIDT of Rs. 78 Cr with a growth of whopping 123% as against the loss of Rs. 342 Cr in FY12. Reliance Retail Ltd has about 50 retail-business as its own subsidiary. Reliance Retail Ltd.’s Fashion & lifestyle format posted revenue of Rs. 1600 Cr showing a growth of 45% from 448 stores and will be adding 95 more new stores. Its Jewellery format posted revenue of Rs. 800 Cr showing a growth of 57% from 51 stores and will be adding 14 more new stores. Its Value format posted revenue of Rs. 6100 Cr showing a growth of 19% from 760 stores and will be adding 10 more new stores. Its Brands format posted revenue of Rs. 200 Cr showing a growth of 82% from 68 stores and will be adding 19 more new stores and its Digital format posted revenue of Rs. 61 Cr showing a growth of 76% from 139 stores and will be adding 46 more new stores.

Outlook and Valuation:

RIL completed India’s largest share buyback programme aggregating to Rs.3,366 Cr and bought back 4,62,00,000 Shares of Face value of Rs. 10 each. RIL posted a record performance in Net Profit of Rs. 5,589 Cr for Q4FY13 which is up by 31.9 % on YoY. Refining Earnings before Interest and Tax beat the street and grew to 4.5% to Rs. 3,520 Cr on back off better Gross Refining Margins. GRM improved from $9.6/bbl to $10.1/bbl. Reliance Sibur Elastomers Private Limited (RSEPL), a joint venture between RIL and SIBUR began construction of their new butyl rubber plant, in Jamnagar. The new plant will be India’s only manufacturer of butyl rubber and the JV will be amongst the world’s top five manufacturers of butyl rubber. RIL will supply monomer and provide the JV with world-class infrastructure and utilities. Reliance has already started market seeding butyl rubber from SIBUR in India. The response is very encouraging. Reliance witnessed sharp improvement in complex refining margin and delivered record performance taking benefit of being an integrated energy Company. The fair value of RIL on basis using DCF comes at Rs. 840.50/share, while the valuation of its investments in subsidiaries comes at Rs. 104.50/share. At the current market price of Rs. 802.90, the stock is trading at 11.75 x FY14E EPS of Rs 68.30/share and at 11.13 x FY15E EPS of Rs 72.10/share. Declining gas production in KG basin as a concern will remain for some more time. RIL on the back of higher incremental new capacity compared to incremental demand refining cycle going ahead could be weak. However, a positive point could trigger from governments stance towards Reliance’s exploration and production efforts and the growth shown by its Retail Business and with the new venture in Telecom by forming JV's and by launching 4G, RIL surely will have the first mover advantage. The buyback of share will impact about 1.5% on EPS and will cause positively to raise it from current level; hence the stock could be a buy at current levels with a medium to long term target of Rs. 840.50.

BUSINESS SUBSIDIARY	Value per Share(₹)
CORE BUSINESS
Refining	318.00
Petro chemicals	265.00
E&P INITIATIVES
KG - D6 Gas (KG Basin)	25.00
KG - D6 MA1 Oil (KG Basin)	11.00
KG - DWN - 2003/1 (D3)	10.00
NEC - 25 (Mahanadi Basin)	15.00
Sohagpur East & West (CBM)	13.00
Other E&P	25.00
INVESTMENTS
In Shale Gas	41.00
In RGTIL, RIIL	11.00
In SEZ	14.50
In BWA	18.00
In Reliance Retail	20.00
Less: Debt	14.00
Plus: Treasury Stock	68.00
TOTAL VALUE OF SHARE	840.50

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	3,57,900	3,62,000	3,26,500	3,21,100
NET PROFIT (₹ Cr)	20,000	21,900	22,100	23,300
EPS (₹)	62.00	67.80	68.30	72.10
PE (x)	14.50	13.30	13.20	12.50
P/BV (x)	2.20	2.00	1.70	1.60
EV/EBITDA (x)	7.40	7.10	7.90	6.30
ROE (%)	14.60	15.70	14.00	13.10
ROCE (%)	12.40	12.90	12.20	12.30

I would buy RELIANCE INDUSTRIES LTD with a price target of ₹ 840.50 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 ₹ 738.66 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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

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