MOSL: Morning India (22/February/18): 1. VOICES | INDIA INC ON CALL; 2. Coal India; 3. Tata Steel; 4. Idea Cellular; 5. Mahindra CIE
MOrning India (22/February/18): 1. VOICES | INDIA INC ON CALL; 2. Coal India; 3. Tata Steel; 4. Idea Cellular; 5. Mahindra CIE
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Today’s top research idea
Tata Steel: Strategic bids for Bhushan may drag stock performance
- According to media reports, TATA has emerged as the top bidder in the recent auction of two steel assets, i.e., Bhushan Steel and Bhushan Power & Steel.
- While the bid details are still sketchy, on cross-cycle margins of INR7,000-9,000/t, the valuation of INR544b is at ~8.5x EV/EBITDA (or more expensive). This appears expensive compared to sector average multiple of 6 to 7x, and the acquisition is likely to drag the stock performance over the near-to-medium term. The TP may get eroded by 13% to INR677, based on 6.5x EV/EBTIDA and book value for CWIP.
- However, strategically, the acquisition makes sense, as valuations are in line with replacement cost. TATA can drive synergies through captive mining, marketing synergies and low-cost expansion. However, it remains to be seen how the equity market will value these growth options. We remain Neutral.
Piping hot news
Maruti’s Nexa third-largest retail network in PV sales
Maruti Suzuki Nexa — the chain of premium sales outlets launched by the company in July 2015 — has emerged as third-largest selling retail network in the local passenger vehicle market in less than three years of launch, trailing the parent’s regular sales channel (which clocked sales of 10,88,998 units) and rival Hyundai Motor India’s distribution network (4,43,727 units) in terms of volumes till January this year.
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