LISTING |
|
|
Rs 412 |
|
Rs 861/Rs137 |
|
Rs 10 |
Average Volume |
13256593 |
PE Ratio |
7 |
P/BV |
1.75 |
Div% |
160% |
COMPANY OVERVIEW:
TATA IRON AND STEEL COMPANY was formed in 1907 in Mumbai. Tata Steel is the world`s sixth largest steel company with an existing capacity annual crude capacity steel production capacity of 30 million tons per annum (mtpa).
Tata Steel has global presence in over 50 developed European and fast growing Asian Market, with manufacturing units in 26 countries.
Tata Steel Jamshedpur plant has a crude steel production capacity of 6.8mtpa which is expected to increase to 10mtpa by 2010. The company has also proposed three Greenfield steel projects in the state of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23mtpa and a Greenfield project in Vietnam.
Through investment in Corus, Millennium Steel and NatSteel Holding, Tata Steel has created manufacturing and marketing network in Europe, South East Asia and the pacific-rim countries. Corus has manufactured over 20mtpa of steel in 2008. It has operation in UK, Netherland, Germany, France, Norway and Belgium.
Tata Steel Thailand is the largest producer of long steel product in Thailand with a manufacturing capacity of 1.7mtpa. Tata steel has proposed 0.5 mtpa mini blast furnace project in Thailand. NatSteel has capacity of 2mtpa across its regional operation in seven countries.
Tata Steel Competitive Advantage:
The Iron Ore Mine and Collieries in India give the company a distinct advantage in raw material sourcing. The company is also striving for raw material security through joint venture in Thailand, Australia, Mozambique, Ivory Coast and Oman.
STEEL INDUSTRY OUTLOOK:
Steel prices likely to remain low as global overcapacity of 30% plus to remain for next 2 years.
We do not see any significant up move in the demand.
Steel Industry OPM is at 20 years low.
GLOBAL STEEL COMPANY VALUATION:
COMPANY |
P/E FY2011E |
NIPPON STEEL |
12 |
POSCO |
10 |
ARCELOR MITTAL |
9 |
THYSSENKRUPP |
16 |
JFE HOLDING |
10 |
GERDAU |
11 |
US STEEL |
27 |
NUCOR CORP |
17 |
EVRAZ |
6 |
CHINA STEEL |
16 |
WUHAN IRON |
12 |
ANGANG STEEL |
16 |
MAANSHAN |
14 |
BAOSHAN |
14 |
TATA STEEL |
132 |
GLOBAL AVERAGE |
21.3 |
REASON TO AVOID THE STOCK:
Current run up in the stock price has made it over valued. It has outperformed its global peers.
Corus acquisition to remain a drag on the counter.
Higher debt in the book.
Weak global demand likely to continue for next 2 years.
Highly leveraged balance sheet.
KEY RISK:
Any recovery sooner than expected by us can turn the fortune and hence will rerate the stock.
Corus cost reduction by captive iron ore from Indian mines.
Any step by UK which reduces financial risk of Tata Steel.
SHAREHOLDING PATTERN:
|
|
NO. OF SHARES |
% OF TOTAL |
PROMOTER |
248065857 |
|
33.95% |
|
INSTITUTION |
277376237 |
|
37.97% |
|
GENERAL PUBLIC |
205150377 |
|
28.08% |
|
GRAND TOTAL |
730592471 |
|
100% |
|
FINANCIAL:
|
|
31/03/07 |
31/03/08 |
31/03/09(E) |
31/03/10(E) |
TOTAL INCOME |
20196.24 |
20028.28 |
23757.12 |
14254.27 |
%change in sales-yoy |
|
-0.83% |
18.6% |
-40% |
EXPENDITURE |
-12678.3 |
-11469.7 |
-13509.79 |
-11261.3 |
OPERATING PROFIT |
7517.94 |
8558.54 |
10247.33 |
2993 |
%change in OP-yoy |
|
13.8% |
19.7% |
-70% |
DEPRECIATION |
-819.23 |
-834.61 |
-956 |
-956 |
PBIT |
|
6698.71 |
7723.93 |
9291.33 |
2037 |
INTEREST |
|
-173.9 |
-878.7 |
-997.15 |
-997.15 |
PBT |
|
6524.81 |
6845.23 |
8294.18 |
1039.85 |
TAX |
|
-2039.5 |
-2379.33 |
-2486.41 |
-311.95 |
PAT |
|
4485.31 |
4465.9 |
5807.77 |
727.9 |
%change in PAT-yoy |
|
|
-0.44% |
30% |
-87% |
Key Highlights:
Total Income to decline by 40% in FY2010E.
Operating Profit is expected to come down by 70% in FY2010.
PAT to decline by 87% in FY2010.
RATIOS:
|
|
31/03/07 |
31/03/08 |
31/03/09(E) |
31/03/10(E) |
EPS |
|
61.40055 |
61.13484 |
79.50404 |
9.964408 |
|
OPM |
|
37.22445 |
42.73228 |
43.13372 |
20.99722 |
|
NPM |
|
22.20864 |
22.29797 |
24.44644 |
5.10654 |
|
INTEREST COVER |
38.52047 |
8.790179 |
9.319288 |
2.043129 |
|
Key Highlights:
EPS to come down from Rs79 in FY2009E to Rs9.96 in FY2010E due to pressure on margin and high debt burden.
OPM to decline from 43% in FY2009E to 21% in FY2010E.
NPM to decline from 43% in FY2009E to 21% in FY2010E.
Interest cover is to decline from 9.3 in FY2009E to 2.05 in FY2010E.
COMAPRISION OF Q3FY2009 WITH Q3FY2008:
|
|
31/12/07 |
%CHANGE |
31/12/08 |
TOTAL INCOME |
5040.95 |
-4.56 |
|
4810.63 |
EXPENDITURE |
-2877.31 |
|
|
-3324.19 |
OPERATING INCOME |
2163.64 |
-31.28 |
|
1486.44 |
DEPRECIATION |
-209.21 |
|
|
-251.31 |
PBIT |
|
1954.43 |
|
|
1235.13 |
INTEREST |
|
-362.67 |
|
|
-348.2 |
PBT |
|
1591.76 |
|
|
886.93 |
TAX |
|
-506.07 |
|
|
-293.89 |
PAT |
|
1085.69 |
-45.37 |
|
593.04 |
VALUATION:
At CMP of Rs 412 the stock is trading at 39.3X to FY2010E earning. Looking at the global peers stocks seems to overvalue. The global average P/E is 21.3. If we value at global average the stock price come at Rs212.
Investor should avoid the counter till the time better outlook emerges for the sector.
CONCLUSION:
Stock should be avoided as the industry outlook is not good at present. The highly leveraged balance sheet is also negative for the stock.
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