Maintain Buy on Tata Steel - TCP Sale Done - Motilal Oswal

TATA STEEL: TCP sale done though at slightly lower price; both volume & margin expansion to drive earnings

- Tata Steel has now signed a definitive agreement with SSI for sale of TCP for US$469m, lower than US$500m initially agreed.

Tata Steel will continue to operate 2 large diameter tube mills in Hartlepool, the Skinningrove special section mill, Teesside Beam mill, & Teesside Tech Centre.

We believe that this deal will result in permanent exit from low margin, high working capital & high cost business. This will reduce risk and volatility.

The proceeds of deal will be utilized in making other units of TSE more efficient.

Tata Steel is our top pick as volume growth in high margin business will drive the earnings over couple of years. Stock trades at attractive valuations of 5.4x FY12 EV/EBITDA and 7.3x FY12 PE. Maintain Buy.

Source : Equity Bulls

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