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UBS Investment Research
Tata Steel Ltd.
S ells stake in Riversdale Mining
Event: Sells stake in Riversdale (A$1.06bn); Retains coal offtake rights
1) Tata Steel has sold its 26.27% stake in Riversdale Mining Ltd for A$1.06bn
(US$1.1bn) after Rio-Tinto increased stake in Riversdale to 73.2% and announced
delisting. 2) Tata Steel will retain 35% stake in the Benga project and 40% coal
offtake right - expects 1mt of coking coal from FY13. 3) There will be no capital
gains tax as the stake was held by Tata Steel Global Minerals Holding Pte (100%
sub of Tata Steel Ltd) which is registered in Singapore (where there is no capital
gains tax). Tata Steel made c100% profit from this stake sale.
Impact: Not factored in current stock price; positive move to deleverage
1) We believe the market was not valuing the stake in Riversdale. Hence, stake sale
should be incrementally positive for Tata Steel’s stock. 2) Tata Steel’s net debt as
of Mar 2011 was US$10.5bn –this stake sale will help reduce net debt by
US$1.1bn. High leverage has been an overhang – FY11 Net debt/EBITDA was
3.5x.
Action: Raise price target to Rs860; attractive risk reward levels
We raise PT to Rs860 (from Rs820) as we reduce net debt by US$1.1bn - We had
not included value of Tata Steel’s stake in Riversdale in our valuation earlier. We
maintain Tata Steel as our most preferred Indian steel stock due to 1) 40% capacity
expansion in India by Dec 2011 2) Partial integration in Corus by FY13 3)
Attractive valuations – trading at 5.3x/5.9x FY13E EV/EBITDA and PE.
Valuation: maintain Buy; raise price target to Rs860
We continue to value Tata Steel on SoTP basis with Indian business at 7.4x,
Europe at 6x, others at 6.5x EV/EBITDA on normalised EBITDA (FY12-13E).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Tata Steel Ltd.
S ells stake in Riversdale Mining
Event: Sells stake in Riversdale (A$1.06bn); Retains coal offtake rights
1) Tata Steel has sold its 26.27% stake in Riversdale Mining Ltd for A$1.06bn
(US$1.1bn) after Rio-Tinto increased stake in Riversdale to 73.2% and announced
delisting. 2) Tata Steel will retain 35% stake in the Benga project and 40% coal
offtake right - expects 1mt of coking coal from FY13. 3) There will be no capital
gains tax as the stake was held by Tata Steel Global Minerals Holding Pte (100%
sub of Tata Steel Ltd) which is registered in Singapore (where there is no capital
gains tax). Tata Steel made c100% profit from this stake sale.
Impact: Not factored in current stock price; positive move to deleverage
1) We believe the market was not valuing the stake in Riversdale. Hence, stake sale
should be incrementally positive for Tata Steel’s stock. 2) Tata Steel’s net debt as
of Mar 2011 was US$10.5bn –this stake sale will help reduce net debt by
US$1.1bn. High leverage has been an overhang – FY11 Net debt/EBITDA was
3.5x.
Action: Raise price target to Rs860; attractive risk reward levels
We raise PT to Rs860 (from Rs820) as we reduce net debt by US$1.1bn - We had
not included value of Tata Steel’s stake in Riversdale in our valuation earlier. We
maintain Tata Steel as our most preferred Indian steel stock due to 1) 40% capacity
expansion in India by Dec 2011 2) Partial integration in Corus by FY13 3)
Attractive valuations – trading at 5.3x/5.9x FY13E EV/EBITDA and PE.
Valuation: maintain Buy; raise price target to Rs860
We continue to value Tata Steel on SoTP basis with Indian business at 7.4x,
Europe at 6x, others at 6.5x EV/EBITDA on normalised EBITDA (FY12-13E).
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