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.

Is it Time to worry about the Dollar??

The Fed’s so-called “QE2″ (Quantitative Easing/second round) which is purchasing of U.S. Treasury bonds by printing more and more currency notes to fulfill its purchases are supposed to come to an end on June 30, 2011, which would make July a crucial month – for the US economy, for the performance of the dollar and most of all for the Emerging Markets like INDIA.

For the last two years, the U.S. economy has been supported by the twin catalysts of fiscal and monetary stimuli. Fiscal stimulus seems to continue for some time as US have year’s $1.6 trillion deficit. But monetary stimulus is another matter. 

Since QE2 began in November 2010, the Fed has been buying about two-thirds of the Treasury bonds issued – or about $600 billion ($60,000 Cr) of the $900 billion ($90,000 Cr) in total bonds to be issued between November and June. Simply extending QE2 won’t solve this problem. The Fed would then be buying both too much of debt and not enough of debt at a same time.

Treasury bond purchases of $75 billion ($7,500 Cr) a month would be enough to push inflation sharply upwards. This is, after all, the very same policy that gave the German Weimar Republic its trillion-percent inflation. On the other hand, even if the Fed buys $75 billion ($7,500 Cr) of Treasuries a month, this will bring with them the need to place an additional $75 billion ($7,500 Cr) worth of bonds every month. And with inflation rapidly accelerating, the chances of a bond market and dollar crisis would still be great, which will affect the flows of foreign money (FII’s money) to the emerging markets like India. This is a concern!!!!

The one way to avoid the Death of the Dollar

With the U.S. market struggling under the burden of rising inflation and some ill-advised monetary and fiscal moves, the death of the dollar is looming as a worst-case – but still possible – scenario.

The Fed has one chance to avoid this outcome. Just to have a chance of staying level with inflation. U.S. central bank policymakers must boost short-term interest rates at least to the 3% level. That would burst the global commodities bubble like one in Sliver, and reduce inflationary pressures. With that, the Fed could then –continue with a “modified QE3.” For instance, it could buy $50 billion ($5,000 Cr) of bonds in the third quarter and $25 billion ($2,500 Cr) in the fourth quarter, thus breaking the Treasury bond market. With inflationary pressure reduced by the interest-rate increase, the chances of a Treasury-bond-market meltdown would thus be reduced to almost zero. Interest rates would rise and bond prices would decline, but it will be in an orderly manner. And inflation, if it continued, would do so at a more-moderate pace.

In fact, even inflation – should it remain stronger-than-desired – could be moderated, simply by raising rates a bit more, perhaps in several increments. And the U.S. dollar would be saved. There’s only one problem with this scenario and that won’t happen unless Bernanke won’t boost rates.

Visit my previous post on click here-  US PRINTING NOTES

TATA MOTOR DVR : Buy for Dividend yields.

Scrip Code: 570001 / TATAMTRDVR

CMP:  Rs. 696.20; Buy at Rs.670 – Rs.685
Price Target: Short term Rs.725;Long term Rs. 920.
Market Cap: Rs. 6,707.30 Cr.
52 Week High/Low: Rs.940 / Rs. 407.35

Total Shares: 9,63,41,706  shares(15.2% of Sh Capital); Promoters : 1,84,01,430 shares – 19.10 %; Total Public holding : 7,79,40,276 shares – 80.89 %;

Book Value: Rs. 237.37*; Face Value: Rs. 10.00; EPS: Rs.28.99*; Div:150* %.

P/E: 23.80* times; Ind P/E: 32.39*; EV/EBITDA: 18.68*
Total Debt: Rs. 3,163.18* Cr; Enterprise Value: Rs. 1857.52* Cr

*Being DVR a class of equity capital, Tata motors financials are used.

Tata Motors, founded in 1945, was formerly known as Tata Engineering And Locomotive Company Limited changed its name to Tata Motors Limited in 2003. The company is leading manufacturer of commercial & passenger vehicles in India is among the top 3 passenger car manufacturers in India, the world's 4^th largest truck manufacturer, and world's 2^nd largest bus manufacturer. Tata Motors has operations in UK, South Korea, Thailand & Spain. The company has many subsidiaries but the most prominent among these is Jaguar-Land Rover (JLR) (a British car manufacturing company) which it acquired in 2008 at $230 Cr and turned it from a loss making company to a profit making company. JLR contributes 54% to the company’s revenues. The company’s product portfolio ranges from the ultra low cost car Nano to the luxurious cars from JLR, from its ground breaking invention of the light commercial vehicle (LCV) the Ace to the international Prima Truck range.

Experienced and Efficient Management: Tata Motors is a part of the Tata group which is headed by Mr. Ratan Tata, chairman of Tata Motors Ltd. Also the management includes Carl Peter Foster who has a vast experience. He headed the BMW Group for 20 years.

Strong Consolidated Growth: Tata motors had acquired Jaguar and Land Rover from Ford Motor Co. During acquisition the unit was a loss making one. But the management at Tata motors was capable enough to achieve a turn around and not just TTM stopped losses but converted it to a profitable venture. Today around 54% of Tata Motors Revenues comes from JLR.

Good Product Mix: Tata motors had begun as a commercial vehicle manufacturer. A decade ago, Tata Motors had begun to manufacturer passenger vehicles. Today Tata Motors is one of the leading automobile makers in the world. It is India’s largest Automobile manufacturer. Its passenger cars range from the worlds cheapest car, the Nano, to its newest cross over the Aria to the luxurious cars from JLR. The company has a vast portfolio of commercial vehicles ranging from its super successful LCV, the Ace, to the its sturdy tractor trailers, haulage vehicles, buses, hybrid buses, etc to the Prima trucks built for sale in international markets.

My view on Valuations: The performance of the company increased considerably during the Q2FY11 and Q3FY11 and the outlook for Tata Motors continues to be positive, given the robust growth in the economy, increase in sales and profitability of JLR, improvement in industrial and mining sector, completion of ramp-up at its Sanand plant for Nano. The only concern is the supply constraint it faces from Ford for engines and from other suppliers for raw material. At the CMP of Rs. 696.20, Tata Motors DVR is trading at 5x its FY11E EPS of Rs.138.4 and at 4.37x its FY12E EPS of Rs.159.2.

Globally DVRS trade between 10% - 15% discount to its Equity shares, TTM DVR currently trades at 44 % discount to its Equity shares. One should buy TTM DVR at 40% - 45% discount to its EQ SH & Sell when DVR is 10% - 15% discount to its EQ SH. TTM DVR can be a good “BUY” with a target price of Rs.900, with an upside of 30% in the long term.

Expect discount to the Equity Shares reduce (to at least 30%) over the next one year given the attractive valuations and increasing free float. For the shorter term it can be a good BUY, with a price target of Rs.725.00

KEY FINANCIALS	2010	2011E	2012E
SALES (Rs. crs)	92,519.3	1,15,576.8	1,30,024
NET PROFIT (Rs. crs)	1,526	8,680.4	9,986.6
EPS (Rs.)	44.1	138.4	159.2
PE (x)	28.9	5.0	4.4
P/BV (x)	9.1	2.3	1.6
EV/EBITDA	10.1	3.9	3.5

I maintain my BUY status on TATA MOTOR DVR with the price target of Rs. 725 in short term. For long term my target is of Rs.920. As I always say do respect the market and keep a strict stop loss of 8 % on your every purchase.
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