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Tuesday, February 1, 2011

Buy stocks of JSW Steel for medium to long term

Another stock to buy in the series "Stocks to buy". This post reasons why to buy stocks of JSW Steel for medium to long term investment.

JSW Steel Limited (JSW) is in the business of production and distribution of iron and steel products. The Company has two primary business segments, Steel and Power (used mainly for captive consumption). The Company’s products include hot-rolled coils/steel plates/sheets, rolled products (long), cold-rolled coils/sheets, galvanized plain/corrugated/color coated coils/sheet, steel billet, and bars and rods.

Let's have a look at few key drivers for growth of JSW steel in year 2011.

JSW Steel is set to buy 41.29% stake in Ispat industries for Rs 2157 crore (Rs 19.85 per share) through the issue of fresh shares. Present promoters would hold around 20% - 22% but Management control would be with JSW steel. Ispat's stock valuation are at very cheap level as it is stuck in debt raised for its expansion plans.

JSW Steel is also the top bidder to buy banks' Ispat Convertible Debt at premium. Ispat owes about USD 1.5 billion, including foreign-currency loans, to lenders including IFCI Ltd., IDBI Bank Ltd. and ICICI Bank Ltd. On November 26, 2010, it converted part of the debt into equity by issuing 77.7 million shares to lenders.

All steel majors like Tata steel and Arcelor Mittal were looking to buy stake in Ispat but JSW steel has snapped the deal quickly to own controlling stake.

Company has announced a new capex of Rs 4bn on setting up of a new cold rolling mill (CRM) complex of 2.3mtpa in two phases at its Vijaynagar unit to cater to the niche auto and white goods segment demand.

The acquisition is definitely positive for JSW steel in long term. It will become largest steel company in India with total capacity of 14.3 million tonnes. With expected EPS of Rs 112 for FY 12, stock price target could be around Rs 1200. Gains of ~30% at current stock price. Investors may buy stocks for medium to long term.

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