Subscribe to Tata Steel’s FPO: PINC

MUMBAI: PINC Research has advised investors to ‘Subscribe’ to the follow-on public offer of Tata Steel. The company plans to raise between Rs 3385.8 crores to Rs 3477 crores by offering shares in the price band of Rs 594-610/share. The proceeds would be utilised mainly for part-funding of capex at Jamshedpur and payment on maturity of debentures in FY12.

“Contract prices for Q4FY11 have settled at higher level due to increased spot prices. Coking coal spot price continues to strengthen, as floods in Australia disrupt supply. We believe high raw material prices would exert further pressure on steel processing margin in FY12.

However, integrated operation of Tata Steel India would benefit from rising steel prices on cost push. At FY12E EV/EBITDA of 4.8x and 4.9x at upper band of FPO and CMP respectively, the stock is attractively valued.

We maintain ‘BUY’ on the stock with a revised target price of Rs 817 (blended 6.1x FY12E EV/EBITDA). Recommend ‘SUBSCRIBE’ to FPO,” the report said.