Maintain Buy on Tata Steel Ltd - Motilal Oswal

TATA STEEL: Announces price band of Rs594-610 for FPO of 57m shares; FY12 EPS diluted by 2.3%; Maintain Buy

Tata Steel announced price band of Rs594-610 for its forthcoming FPO of 57m shares amounting to Rs33.9-34.8b. The issue price is at discount of 1.9- 4.5% discount to the closing price on Jan 14 (the date of announcement). Bids open on January 19 and close on January 21. The anchor book opens and closes on January 18.

Post issue, FY12 EPS is diluted by 2.3% to Rs73.4 assuming that the issue is subscribed at upper band and replaces high cost debt bearing 10% interest cost.

If CARs (conversion price Rs606) and FCCBs (Rs733) totaling ~Rs41b are also converted over 2-3 years, an additional 63.2m shares will be issued.

The proceeds of the issue will be utilized as follows: 1] Rs18.75b towards Capex at Jamshedpur. Capacity expansion by 2.9mtpa to 9.7mtpa is underway at Capex of Rs163.7b. Until November 2010, Rs64.7b was spent. Balance Rs77.5b will be funded by internal accruals and debt. 2] Rs10.9b towards redemption of privately placed NCDs. 3] Rs5.12b towards general corporate purpose.

Motilal Oswal believes that the FPO will strengthen balance sheet and fund its high RoI projects in India besides the initiative to improve raw material linkages overseas. Over the next 12-15 months, many of these projects will start generating cash flows. Stock trades at attractive EV/EBITDA of 6x FY12 and 4.8x FY13. Maintain Buy.

Source : Equity Bulls

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