Tata Steel
Reco Price: Rs 613,
Target Price: Rs 778
Tata Steel has signed an agreement with New Millennium Capital Corp. (NML) to develop the LabMag and KeMag iron ore deposits (together known as The Taconite project) in Canada with reserves of 5.6 billion tonnes (at 30 per cent Fe) and a total reserve and resources of 9.1 billion tonne. Tata Steel has indicated a long-term target of 50 per cent iron ore integration for Tata Steel . This implies a requirement of 10 million tonne per annum from Taconite project, against its capacity of 22 million tonne per annum. This means that Tata Steel will require minimum of 45 per cent stake in the project. It is good strategy to secure iron ore (Canada) and coking coal (Mozambique) supplies for Tata Steel Europe. However, the benefits would flow in only in the second half of 2012-13.Maintain buy.
—Edelweiss Research
Usha Martin
Reco Price: Rs 50,
Target Price: Rs 82
The company has resumed operation of the 30-Mw CPP (90 per cent PLF) affected by blade failure in the third quarter. Further, transportation of captive coal from Kathuria mine has been resumed to normal level of 40kt per month. The company is confident of increasing DRI and billet output for the fourth quarter to 70kt (52kt in the third quarter) and 150kt (113kt in the third quarter), respectively. Besides, it has more than 2.0 million tonnes of iron ore fines inventory, which would be used in captive sinter and pellet plant. Moreover, the company has procured enough coking coal at $225 per tonne to meet requirement for the fourth quarter, as well as built 0.1 million tonne inventory to be used in the first quarter of 2011-12. On revised estimates, the stock is attractively valued at 3.3 times 2011-12E EV/Ebitda. Maintain buy.
—Pinc Research
L&T
Reco Price: Rs 1,662,
Target Price: Rs 2,210
The brokerage recently visited L&T’s Hazira facilities — spread over 750 acres by the waterfront — which houses the heavy engineering division, fabrication facilities (oil & gas related), ship-building yard and the recently commissioned BTG facilities. L&T’s 4,000-Mw BTG facilities (L&T-MHI JV) was set up in record time of under 24 months. While these facilities could be stretched to execute up to 5,000 Mw capacity, the management has taken a conscious decision to not scale up to 6,000 Mw in the medium term. Focus remains on reducing costs and timely delivery. At recommended price, L&T offers good risk reward, with earnings backed downside protection in place. At Rs 1,662, the stock trades at PE of 22.0 times 2010-11E and 18.4 times 2011-12E earnings. Maintain buy.
—ENAM
Hindustan Zinc
Current price: Rs 134,
Target price: Rs 154
The brokerage has raised the Hindustan Zinc’s (HZL) 2010-11E-12E earnings estimates by 4-10 per cent. Its 2011-12E-13E earnings is 6 per cent more than the street’s, which it believes have further upside in the form of zinc, lead and silver volumes. Also, the brokerage’s recent site visit reaffirmed faith in HZL. Rampura Agucha, HZL’s premier mine, is not showing any signs of operational cost escalation. The speedy execution reflects Vedanta Aluminium’s (VAL) zeal — mine and smelter capacity is ramping up ahead of schedule. The brokerage has revised the target price to Rs 154 (due to the rollover targeted EV/E of 5.5 times to 2012-13 from 2011-12). Maintain buy.
—ICICI Securities
