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Steel (Navin Gupta)
Budget 2011 impact: Marginally Positive
No change in excise duty from the current 10% - in line with expectations
Decrease in surcharge from 7.5% to 5% - This is positive for the entire
metals sector
Increase in export duty on iron ore – Slightly positive for domestic steel
sector
— The increase in export duty on iron ore is positive for the domestic steel
companies, as the move dissuades iron ore exports to an extent, hence
making the material available to the domestic companies at a price that is
cheaper than the imports.
Increased allocation for housing, rural development and infrastructure related
schemes – Marginally positive for all steel/metal companies.
Sector view: Selectively positive
We believe recent correction (up to 30% in last 3 months) in the Indian steel
sector presents a selective buying opportunity. Sector has underperformed given
rising cost. But we believe this is already priced in and view any increase in
steel prices to act as a positive catalyst.
In this environment we prefer companies with upfront volume growth, raw
material integration (in that order). Our preferred picks are Tata Steel and JSW
Steel. We are Neutral on SAIL.
Top picks
Tata Steel continues to be the top pick. We prefer Tata Steel amongst the steel
companies under our coverage. We believe Tata Steel’s earnings will be
supported by
— Capacity expansion in Jamshedpur - capacity is scheduled to increase by
2.9mt to 9.7mt by December 2011.
India Market Strategy 28 February 2011
UBS 76
— Increased integration in Corus – FY13. Corus will have 4mt captive iron
ore and 1mt captive coking coal.
We estimate the value of Tata Steel’s 24% stake in Riversdale could be
cRs40/share (at A$16 per share for Riversdale). We have not factored the
potential Riversdale stake sale in to our valuation.
We value Tata Steel on an SOTP basis with the Indian business at 7.4x, Europe
at 6x, and others at 6.5x EV/EBITDA on normalised EBITDA (FY12-13E). We
maintain a Buy rating on the stock with a price target of Rs820
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Steel (Navin Gupta)
Budget 2011 impact: Marginally Positive
No change in excise duty from the current 10% - in line with expectations
Decrease in surcharge from 7.5% to 5% - This is positive for the entire
metals sector
Increase in export duty on iron ore – Slightly positive for domestic steel
sector
— The increase in export duty on iron ore is positive for the domestic steel
companies, as the move dissuades iron ore exports to an extent, hence
making the material available to the domestic companies at a price that is
cheaper than the imports.
Increased allocation for housing, rural development and infrastructure related
schemes – Marginally positive for all steel/metal companies.
Sector view: Selectively positive
We believe recent correction (up to 30% in last 3 months) in the Indian steel
sector presents a selective buying opportunity. Sector has underperformed given
rising cost. But we believe this is already priced in and view any increase in
steel prices to act as a positive catalyst.
In this environment we prefer companies with upfront volume growth, raw
material integration (in that order). Our preferred picks are Tata Steel and JSW
Steel. We are Neutral on SAIL.
Top picks
Tata Steel continues to be the top pick. We prefer Tata Steel amongst the steel
companies under our coverage. We believe Tata Steel’s earnings will be
supported by
— Capacity expansion in Jamshedpur - capacity is scheduled to increase by
2.9mt to 9.7mt by December 2011.
India Market Strategy 28 February 2011
UBS 76
— Increased integration in Corus – FY13. Corus will have 4mt captive iron
ore and 1mt captive coking coal.
We estimate the value of Tata Steel’s 24% stake in Riversdale could be
cRs40/share (at A$16 per share for Riversdale). We have not factored the
potential Riversdale stake sale in to our valuation.
We value Tata Steel on an SOTP basis with the Indian business at 7.4x, Europe
at 6x, and others at 6.5x EV/EBITDA on normalised EBITDA (FY12-13E). We
maintain a Buy rating on the stock with a price target of Rs820
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