Tata Steel - Diwali 2012 Pick - Angel Broking

Tata Steel has completed its 2.9mn-tonne expansion program at the Jamshedpur plant. The product mix constitutes 2.5mn tonne of hot rolled coil (HRC) and 0.3mn tonne of slabs. We expect this expansion to contribute ~Rs.2,500cr per annum to the company's consolidated EBITDA, once the new plant reaches optimum capacity utilization, as it will be backed by captive iron ore.

Tata Steel is in the process of developing a coking coal mine in Mozambique and an iron ore mine in Canada to enhance integration levels of Tata Steel Europe (TSE). The total capex remaining for the Mozambique project is US$100mn-150mn, while the Canadian project will involve a capex of CAD350mn. We expect these backward integration projects at Mozambique and Canada to boost TSE's earnings beginning 2HFY2013.

Tata Steel is setting up a 6mn-tonne integrated steel plant (including cold rolling mill) in two phases of 3mn tonne each for a capex of Rs.34,500cr. Phase 1 of the 3mn-tonne plant is expected to be completed by CY2014. This project is expected to have high returns on invested capital as it would be backed by captive iron ore.

The stock is currently trading at an inexpensive valuation of 5.1x FY2013E and 4.5x FY2014E EV/EBITDA. On a P/B basis, the stock trades at 0.8x FY2013E and 0.7x FY2014E earnings. We maintain a Buy on the stock.

Source : Equity Bulls

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