Brokerages say the latest price hike is sustainable on improved demand and particularly favourable for the world’s seventh-largest steel producer which has captive raw material supplies
The future is looking pretty exciting for Indian steelmakers, according to brokerages.
In a report on Tata Steel released recently, Motilal Oswal Securities (MOSL) says, "Steel prices have recovered by 10-15% across the world over the past one month due to end of de-stocking, supply correction, and raw material cost pressures. HRC (hot-rolled coil steel) prices have risen to $670 per tonne. Demand is likely to pick up over the next couple of months, as buyers return to the market post winter vacations in the western world. A strong steel price scenario is expected for 4-5 months."
In the past few days, Indian steel producers JSW Steel, Essar Steel and Steel Authority of India have announced a 3-5% hike in prices. Kotak said in a report on 3rd January, "Unlike earlier price revision, this appears to be sustainable, noting (1) the cost-push driven increase in steel prices globally over the past few weeks, (2) likely seasonal improvement in demand and restocking, and (3) alignment of domestic steel prices with landed costs of imports. We expect companies with captive raw materials to benefit; Tata Steel will be the biggest beneficiary, in our view."
MOSL agrees that the future for Tata Steel looks particularly exciting. The steelmaker, which has a presence in Europe, Thailand and Singapore, is set to expand its capacity at Jamshedpur from 6.8 million tonnes per annum (mtpa) to 10 mtpa, to start coking coal production at its Benga project in Mozambique and iron ore production at its newly-acquired direct shipping ore (DSO) project in Canada. The brokerage says that a "$100 per tonne increase in steel prices tends to expand the margins of Indian operations by $50 per tonne, thereby driving the equity value by $425 million".
In November 2009, Tata Steel paid $88.2 million to Sydney-based Riversdale Mining to jointly mine coking coal from Benga in Mozambique, to feed its Corus steel-making facilities in the UK and Europe. According to the company, the Benga project has coal reserves of 502 million tonnes. Tata Steel owns 35% stake in Benga with the right to buy 40% of the produce and this will remain even if it sells its 24% stake in Riversdale, on the A$3.9 billion takeover offer by Rio Tinto for the Australian mining company.
In a report late December, independent brokerage CLSA had said, "Recent commentary by Tata Steel's management indicates that the company has not yet decided on making a counter-bid for Riversdale. We consider a counter-bid by Tata Steel as unlikely, as it would reverse the focused balance sheet de-leveraging process currently underway. Acceptance of Rio Tinto's offer for Riversdale has a higher likelihood, but would require Tata Steel getting comfort from Rio Tinto on coking coal supplies."
MOSL says, "Though the coal production is expected to be small at about one million tonnes (on attributable basis from Benga) in FY13 and logistic bottlenecks remain in evacuating large quantity of coal from Mozambique, the keen interest of Rio Tinto group with a firm bid of A$3.9 billion for Riversdale, and a possible counter bid, is likely to get reflected in valuations of Tata Steel sooner than expected."
In September 2010, Tata Steel acquired an 80% stake in the direct shipping ore (DSO) project in Canada's New Millennium Capital Corp (NML). The DSO project has 64 million tonnes of proven and probable mineral reserves. As part of the agreement, Tata Steel will reimburse NML 80% of the cost to date on the project, arrange funding up to CDN$300 million for capital costs and commit to take 100% of the DSO project's iron ore products, of specified quality, at world market prices for the life of the mining operation. The joint venture is expected to produce four million dry tonnes per year of iron ore products.
The Tata Steel stock price was up by over 1% today, after New Millennium said it received environmental approval for its iron ore project with the Indian steelmaker and the joint venture partners expect to begin production by the second quarter of 2012.
According to MOSL, "The Jamshedpur expansion to 10mtpa would be completed by December 2011 and coking coal and iron ore production would start in 2HCY11." The sale of Teesside Cast Products steel plant in northern England for nearly $500 million will help deleverage its balance sheet and reduce earnings volatility for its Europe operations, MOSL says.
The brokerage also points out that over FY10-11 Tata Steel has sold around Rs12 billion worth investments in group companies such as TCS, Tata Power and Tata Motor and it is likely to further unlock value of investments worth about $900 million over the next 2-3 years.
MOSL points out that while steel volume sales and realisations are expected to improve over the next two years, "declining coking coal integration on account of lack of growth at coal mines and appreciation of Indian currency (Rs43 a dollar for FY13) will drag margins".
Capacity utilisation at Tata Steel Europe (formerly Corus) has improved dramatically since FY09, mainly because it reduced purchases of third-party steel. It has undertaken various cost-cutting measures, including rationalisation of staff. Tata Steel margins recovered in 1HFY11 but a subsequent steel price correction and raw material cost inflation weighed in the second half. But with a recovery in steel prices, margins are expected to be higher in FY12.
Write to chief minister Prithviraj Chavan complaining that the former MMRDA commissioner cleared Adarsh housing file and was also responsible for wasteful expenditure on metro and skywalk projects
This has to be a strange promotion. The Adarsh society scam, which has caused the resignation of a chief minister, has also resulted in the elevation of former commissioner of Mumbai Metropolitan Regional Development Authority (MMRDA) Ratnakar Gaikwad to the post of the state's chief secretary. Now, activists and a section of citizens have come forward to support a representation to newly-appointed chief minister Prithviraj Chavan against the appointment of Mr Gaikwad to the key government position for his apparent involvement in the Adarsh housing scandal and wasteful expenditure in some major projects.
In a letter to Mr Chavan, Viren Shah, president of the Federation of Retail Traders Welfare Association, has said that Mr Gaikwad wasted crores of rupees on the failed skywalk project, which had to be stalled halfway. The project did not provide pedestrians any relief, and instead aggravated the traffic situation in many places. Many shopkeepers protested when the project affected their business, but suddenly found themselves behind bars for no reason.
Mr Shah wrote in his letter, "If this person has no knowledge of the grass roots of Mumbai's issues how can he handle issues of Maharashtra? How can such a person make Mumbai a global financial capital and take crucial decisions on infrastructure, when he himself cleared the file of the Adarsh housing society and was a part of conspiracy?"
Transport activist Sudhir Badami points out that Mr Gaikwad's association with the Rs700-crore skywalk project and the monorail project was far worse than the Adarsh scam itself. The 20-km monorail project, which is estimated to cost Rs2,500 crore, works out to about Rs125 crore per km, and this could have been brought down drastically to only Rs15 crore a km had Mr Gaikwad carried out feasibility studies and compared relevant project reports for a bus rapid transport system. Monorail is used worldwide mainly for sightseeing and not commuting. Mr Gaikwad has proposed 180 km monorail for commuting in Mumbai and MMR which would eventually cost Rs27,000 crore as per Mumbai Monorail Master Plan.
Shirley Singh, secretary of the Juhu Scheme Residents' Association, which has protested against the MMRDA's metro project for long, agrees with Mr Shah about Mr Gaikwad's lack of understanding of the city's problems. "The Versova-Andheri-Ghatkopar metro project which Mr Gaikwad had pushed is full of flaws," she said. "It is a burden on the city's infrastructure; he knows that, but refuses to act upon it. Most of the stations are not even two feet from houses in the locality. Underground was a more viable alternative, but he kept on saying that activists have made an issue out of privacy, which is not true. Most of the projects are long overdue and the costs have gone up. If they are not completed after so many extensions, what will he do?"
The Adarsh housing scandal was revealed through an RTI inquiry by Jogecharya Ananji, that showed Mr Gaikwad had granted the occupation certificate, despite an objection from Navy Chief Staff Officer Satish Bajaj. State human rights commissioner Subhash Lalla was forced to put in his papers over the Adarsh matter, whereas state information commissioner Ramanand Tiwari, who has reportedly been asked to step down in this matter, has proceeded on leave. But many are surprised that instead of investigating Mr Gaikwad's apparent role in these matters, he has been given a very important responsibility.
Further, there are some who warn that in case Mr Gaikwad is removed from the important post of chief secretary, he should not be reinstated as MMRDA commissioner. "I am sure that Mr Gaikwad will put a person of his choice as MMRDA chief, so as to enable him to push for what he thinks is right for Mumbai. The chief minister should not revert him back to MMRDA if he is removed as chief secretary. "
The wealth management arm of Kotak Mahindra Bank misled a customer into investing in its India Growth Fund at a steep premium, based on bogus claims. Kotak officials remain impassive even as the investor struggles to find buyers
It seems that customers everywhere are paying a hefty price for their blind trust in companies with strong brand images. Citibank claims it had no inkling about the Rs400-crore fraud played out by one of its employees on unsuspecting clients. Now, a customer of Kotak Mahindra Bank has learnt a harsh lesson after reposing unquestioning faith in the brand he trusted so much.
In a shocking incident, a high net-worth client of Kotak Mahindra Bank was hustled into buying a dud product for a whopping sum of Rs2.27 crore, with the bank pocketing a cool profit of Rs1 crore in the process. The wealth management arm of the bank allegedly misled the investor into putting the money in its India Growth Fund, based on bogus claims regarding its worth and taking undue advantage of the brand name to influence the buyer. The investor's repeated pleas to rectify the damage have fallen on deaf ears as Kotak officials refuse to budge.
The investor, Rajan Manchanda, had in June 2007, invested large amounts in two of Kotak's funds-Biotech fund and Realty fund. Mr Manchanda was given a detailed presentation for both these funds and he gave his acceptance to make the investments. Mr Manchanda also assisted Kotak in getting equivalent investments from his cousin for these two funds. Kotak zeroed in on him again to sell him another product-India Growth Fund.
Mr Manchanda was allegedly misled into investing in the fund by making bogus claims about its worth. Claiming that the fund was being sold to him by another investor in a distress sale at an attractive discount, the Kotak official made a strong pitch in favour of the fund. Although the investor had some reservations, he was persuaded into buying it, saying there was a rush of investors wanting the product while it was available at a discount. Kotak collected Rs2.27 crore from Mr Manchanda, who was under the impression that he was getting the fund at a discount to its value of Rs2.5 crore.
"I told him I had already made huge commitments in the two funds and would like to avoid further commitment. He insisted that I trust him and would not regret as three to four companies were going public in the next 12 months and that would more than take care of the amounts payable for the two other funds. He wanted a commitment immediately or else I would lose out. Upon his assurances and insistence I agreed to invest," said Mr Manchanda, describing his situation.
Curiously, Mr Manchanda was asked to make out the cheque in favour of Kotak Mahindra Prime Ltd, the car financing division of Kotak, and not the seller of the fund. He was told that this was due to certain 'technicalities' involved in the transfer of the fund and that Kotak was not benefiting in any way but only facilitating the transfer. He was repeatedly told that the premium on the distress sale had been paid to the seller of the fund. Surprisingly, the investor was not issued any agreement letter, despite assurances to that effect. Neither was he given any valuation report. Mr Manchanda lost trust and requested the officials to sell all the three funds. Kotak officials, however, kept on assuring him that the funds would be sold and that he should bear with them as the markets were bad.
Sensing foul play, Mr Manchanda approached the Chennai-based seller of the fund in October 2009 and found that he had been taken for a ride all along. Apparently, the seller was paid only his contribution of Rs1.25 crore, minus Rs6 lakh collected by Kotak. Mr Manchanda realised that Kotak had betrayed the trust he had reposed in them and that Kotak had fraudulently dumped onto him a worthless investment at a steep premium. It is obvious that someone at Kotak has made off with a cool Rs1 crore in the process.
Mr Manchanda also tells us that the Realty fund was sold by Kotak on his behalf at Rs1.01 crore, against his investment of Rs1.47 crore. He had to bear a loss of Rs46 lakh on the investment. Apparently, the fund was valued at 1.2 times the investment but sold at a 35% discount to the actual investment. The Biotech fund, supposedly valued at twice the investment, cannot find a buyer, claim Kotak officials. The India Growth Fund is also failing to attract any buyers.
The investor now finds himself in a deep hole as his repeated attempts to get the attention of the top authorities at Kotak have taken him nowhere. Shockingly, every time he finds himself being redirected to the very people who sold him the fund in the first place!
Only recently did the investor get a reply from the wealth management arm on behalf of Uday Kotak, stating that he was not duped in any way. Even Moneylife's attempts to get answers have not yielded any response yet.
The investor has also lodged a complaint with the Securities and Exchange Board of India (SEBI), but has not made any progress here too.