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Wednesday, January 19, 2011

TATA Steel FPO launch on Jan 19 - should you subscribe?

Tata Steel FPO (follow-on public offer) is hitting the stock markets between January 19 to 21. Should you subscribe?

Issue Open: January 19, 2011
Issue close: January 21, 2011
Price Band: Rs. 594 - Rs. 610 Per Equity Share
Minimum Bid Size: 10 Equity Shares
Face Value: Rs. 10 Per Equity Share
Issue Type: 100% Book Building
Maximum Subscription Amount for Retail Investor: Rs. 200000

Incorporated in 1907, Tata Steel Ltd is India’s largest steel companies with a steel production capacity of approximately 27.2 mtpa. The Company 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.

According to WSA, the company was the seventh largest steel company in the world in terms of crude steel production volume in 2009. Tata Steel'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.

The company said out of the total FPO proceeds, Rs 1,875 crore will be used to "part-finance the capital expenditure for expansion of its existing works at Jamshedpur". The expansion work at the Jamshedpur plant, which is scheduled for completion by March this year, will augment the steel production capacity of the plant to 10 million tonnes per annum.

Should you subscribe FPO?
At FY 12E EV/EBITDA of 4.8x and 4.9x at upper band of FPO and CMP respectively, the stock looks attractively valued. The stock price can see levels of 800 in next 1 year. So at upper band of Rs. 610, there is room for appreciation and one may invest in FPO with 1 year time frame.

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