The century old, one of the world’s largest steel producers is coming out with an FPO of 57,000,000 equity shares in the price band of Rs 594- 610. The issue opens on 19-01-11 and closes on 21-01-11. The issue constitutes 5.94% of the post issue paid up capital of Rs 959cr.
BUSINESS:
The Company was established as India’s first integrated steel company in 1907 by Jamsetji N. Tata, the founder of the Tata Group, and is currently one of the flagship companies of the Tata Group.
TATA STEEL is one of the world’s largest steel companies with a steel production capacity of approximately 27.2 mtpa. According to WSA, the Company was the seventh largest
steel company in the world in terms of crude
Steel production volume in 2009. The Company is also one of the most geographically diversified steel producers, with operations in 26 countries and a commercial presence in more than 50 countries.
TATA STEEL has a presence across the entire value chain of steel manufacturing, including producing and distributing finished products as well
as mining and processing iron ore and coal for its steel production. The Company’s operations are primarily focused in India, Europe and other countries in Asia Pacific.
In Financial Year 2010, the Company’s operations in Europe
and India represented 62.9% and 28.8%, respectively, of its total steel production.
FINANCIALS:
In Financial Years 2009 and 2010 and the first half of Financial Year 2011, the Company recorded net sales of Rs. 1,473,293 million, Rs. 1,023,931 million and Rs. 558,399 million, respectively. The Company recorded a profit
after taxes, minority interests and share of profit of associates of Rs. 35,042 million in Financial Year 2009, a loss after taxes, minority interests and share of profit of associates of Rs. 20,147 million in Financial Year 2010 and a
profit after taxes, minority interests and share of profit of associates of Rs. 37,978 million in the first half of Financial Year 2011. The Company had total assets of Rs. 1,213,678 million and total net worth of Rs. 277,416 million as of September 30, 2010.
OBJECTS OF THE ISSUE
The objects of the Issue are to:
1. Part finance the Company’s share of capital expenditure for expansion of existing works at Jamshedpur.
2. Payment of redemption amounts on maturity of certain redeemable non-convertible debentures issued by the Company on a private placement basis.
3. General corporate purposes.
STRENGTHS:
- Global Scale - The Company today has its principal operations in Europe, India and Asia Pacific.
- Strong Position in the Indian and Europe Market.
- Diversified Product Offering.
- Economies of Scale and Cost Reductions.
- Experienced Management Team.
RISKS:
The steel industry is affected by global economic conditions. A slower than expected recovery of the global economy or a renewed global recession could have a material adverse effect.
The steel industry is highly cyclical and a decrease in steel prices may have an adverse effect on the Company’s results of operations.
Europe is the Company’s largest market, and its current business and future growth could be adversely affected if economic conditions in Europe deteriorate.
The Company operates a global business and its financial condition and results of operations are affected by the local conditions in or affecting countries where it operates.
VALUATION AND RECOMMENDATIONS:
The shares are offered around 8 PE. Valuation wise, from Flagship Company of TATA group is reasonable. However, in the last one year, the stock has given a negative return (-3.52%). Better performance and improvement in bottom line is expected in the coming years, as the world economy is recovering. INVEST with a view on long term.
