Subscribe to Tata Steel FPO, says KR Choksey

MUMBAI: KR Choksey Research has advised investors to ‘Subscribe’ to follow-on public offer of Tata Steel. The company has entered the capital market to raise between Rs 3385.8 – Rs 3477 crores by offering shares in the price band of Rs 594-610/share.

“We value Tata Steel on SOTP basis assigning EV/EBITDA of 7x FY12E earnings to Indian operations. A relatively higher EV/EBITDA vis-a-vis its peers SAIL & JSW Steel is due to TSL’s efficient backward integration capabilities.

We value TSL’s European and Asian operations at EV/EBITDA of 5.5x FY12E earnings. TSL’s stake in Riversdale is valued at Rs 47/share thereby arriving at a valuation of Rs 740/share, a potential upside of 17% from the current levels.

We recommend ‘Subscribe’ to the issue with a long term perspective, though we feel that the current FPO pricing at the upper band of Rs 610/share appears to be aggressive compared to its CMP of Rs 632.45/share,” the report said.