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Teesside Cast Products (TCP) plant for a value of USD 469 mn to Sahaviriya
Steel Industries (SSI). The MOU for the deal was signed in August 2010,
targeting a consideration of USD 500 mn, and the sale is expected to complete
by March 2011. The TCP plant has a capacity of 3.9 mt with FY10 production at
2.3 mt. The plant was mothballed in February 2010 after offtake agreement for
~80% of its slab output was purportedly terminated in April 2009. As proposed
in the initial MOU, the deal includes sale of assets such as coke ovens, power
plants, sinter plants, blast furnaces and steel making facilities. As part of the
deal, Tata Steel Europe will continue to operate the Redcar wharf (bulk terminal)
in JV with SSI, thereby providing itself the flexibility to use it for its own
purposes. Tata Steel Europe will also continue to operate two large diameter
tube mills, a special section mill, a beam mill and the technology centre.
Sale value of USD 469 mn lower than targeted, marginal impact on
valuation
The definitive agreement sale value is ~USD 31 mn (earlier USD 500 mn) lower
than the value proposed in the initial MOU. We had considered USD 500 mn in
our fair valuation for Tata Steel, contributing ~INR 23/share to our target price
of INR 778/share. Considering the definitive agreement at USD 469 mn, the
contribution will get reduced to INR 22/share, a marginal impact.
Remain positive; maintain ‘BUY/ Sector Outperformer’
Sale of TCP plant post the mothballing of the facilities in February 2010 is
incrementally positive for the company. We maintain our positive view on Tata
Steel in light of the expected volume growth from the 2.9 mtpa expansion in
India, expected to be completed by Q4FY12, increasing visibility from the
international raw material projects in Canada and Mozambique and better than
expected performance at Tata Steel Europe. We maintain our ‘BUY/Sector
performer’ recommendation/rating on the stock with a fair value of INR
778/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel signs definitive agreement to sell TCP facility for USD 469
mn
Today, Tata Steel announced the signing of definitive agreement for the sale ofTeesside Cast Products (TCP) plant for a value of USD 469 mn to Sahaviriya
Steel Industries (SSI). The MOU for the deal was signed in August 2010,
targeting a consideration of USD 500 mn, and the sale is expected to complete
by March 2011. The TCP plant has a capacity of 3.9 mt with FY10 production at
2.3 mt. The plant was mothballed in February 2010 after offtake agreement for
~80% of its slab output was purportedly terminated in April 2009. As proposed
in the initial MOU, the deal includes sale of assets such as coke ovens, power
plants, sinter plants, blast furnaces and steel making facilities. As part of the
deal, Tata Steel Europe will continue to operate the Redcar wharf (bulk terminal)
in JV with SSI, thereby providing itself the flexibility to use it for its own
purposes. Tata Steel Europe will also continue to operate two large diameter
tube mills, a special section mill, a beam mill and the technology centre.
Sale value of USD 469 mn lower than targeted, marginal impact on
valuation
The definitive agreement sale value is ~USD 31 mn (earlier USD 500 mn) lower
than the value proposed in the initial MOU. We had considered USD 500 mn in
our fair valuation for Tata Steel, contributing ~INR 23/share to our target price
of INR 778/share. Considering the definitive agreement at USD 469 mn, the
contribution will get reduced to INR 22/share, a marginal impact.
Remain positive; maintain ‘BUY/ Sector Outperformer’
Sale of TCP plant post the mothballing of the facilities in February 2010 is
incrementally positive for the company. We maintain our positive view on Tata
Steel in light of the expected volume growth from the 2.9 mtpa expansion in
India, expected to be completed by Q4FY12, increasing visibility from the
international raw material projects in Canada and Mozambique and better than
expected performance at Tata Steel Europe. We maintain our ‘BUY/Sector
performer’ recommendation/rating on the stock with a fair value of INR
778/share.
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