Monday, January 17, 2011

Tata Steel FPO - Analysis, Review, Recommendation

Tata Steel, India's largest steel maker is re-entering capital markets with a FPO (follow-on public offer) of 5.7 crore equity shares. The FPO comprises a net issue to the public of 5.55 crore shares and a reservation of 1,500,000 shares for subscription by eligible employees. It constitutes 5.94% of the post-issue paid-up equity share capital of the company

Tata Steel has 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. As on September 30, 2010, promoters hold 32.48% stake in company. Insurance companies and foreign institutional investors hold 22.4% & 15.87% stake, respectively.

The FPO opens on January 19 and will close on January 21. Its anchor investors’ book, a part of qualified institutional investors, will open on January 18, one day before issue opens for public. The company has fixed price band of Rs 594-610 a share. Bids can be made for minimum 10 equity shares and in multiples of 10 shares thereafter.

Tata Steel intends to use issue proceeds for partly financing the company’s share of capital expenditure for expansion of existing works at Jamshedpur; and payment of redemption amounts on maturity of certain redeemable non-convertible debentures issued by the company on a private placement basis. The company is looking at spending Rs 1,875 crore, which will be raising through issue, for Jamshedpur plant during FY11-13. About Rs 1,090 crore will be spend for payment of redemption amounts in FY12.

For the period of six months ended on September 30, 2010, company reported net profit of Rs 3,644.52 crore on total income of Rs 14,439.33 crore.

Kotak Mahindra Capital Company Limited, Citigroup Global Markets India Pvt Ltd, Deutsche Equities (India) Pvt Ltd, HSBC Securities and Capital Markets (India) Pvt Ltd, RBS Equities (India) Limited, SBI Capital Markets Limited and Standard Chartered Securities (India) Limited are book running lead managers to the issue. Link Intime India Pvt Ltd is the registrar.

Recommendation:
We would recommend this FPO to investors with a long term view.

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