World's seventh largest steel maker Tata Steel's follow-on public offer (FPO) is set to open for subscription tomorrow. It has fixed price band of Rs 594-610 a share for its FPO of 5.7 crore ordinary equity shares of Rs 10 each.
The company aims to raise Rs 3385.8-3477 crore through the issue, which will close on January 21.
Experts are divided on the issue. Deven Choksey of KR Choksey and Manish Bhatt of Prabhudas Lilladher are positive on it while Investment Advisor, SP Tulsian has given a thumps down to the same.
"We are not excited by this Tata Group company’s FPO plans, as there is not enough left on the table for the prospective investors. Infact, value will be seen more in FPO of SAIL, as and when it will hit the market. Concern on global presence of Tata Steel still exists. Hence, we have given a thumps down to the issue on grounds of steep pricing, for those looking for listing gains. This issue may be attractive only for the lenders and institutional investors of the company," Tulsian said.
However, Choksey advises buying for long term investors. Even according to Bhatt the issue looks good.
Research firm PINC Research maintained buy on the stock with a target price of Rs 817.
The report says, "Contract prices for Q4FY11 has 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),” according to the report. The firm recommend subscribing to FPO.
Tata Steel has a steel production capacity of approximately 27.2 mtpa. According to WSA, the company was the seventh largest steel company in the world in terms of crude steel production volume in 2009. The company is also one of the most geographically diversified steel producers, with operations in 26 countries and a commercial presence in more than 50 countries.
Tata Steel intends to use issue proceeds for partly financing the company’s share of capital expenditure for expansion of existing works at Jamshedpur; and payment of redemption amounts on maturity of certain redeemable non-convertible debentures issued by the company on a private placement basis.
