Stocks
Tata Steel forges ahead, but European operations may come under a cloud

Going ahead, slow demand in the EU on account of the ongoing debt concerns and the proposed mop-up of Rs7,000 crore through securities have sounded a note of caution

Tata Steel on Friday reported a net profit of Rs1,978.81 crore in the second quarter of the current fiscal, as compared to a loss of Rs2,707.25 crore during the same period last year. Consolidated net sales of the global steel major was Rs28,090.91 crore in the reporting quarter, a growth of over 11% over Rs25,276.14 crore for the year-ago quarter.  Other income rose to Rs814 crore compared to Rs18 crore in the September quarter of FY10.

During the quarter under review, the world's seventh-largest steel producer approved participation in the Direct Shipping Ore (DSO) project of New Millennium Capital Corporation. A joint venture company (JVC) named Tata Steel Minerals Canada Ltd was incorporated in October 2010. The JVC will acquire all the mining claims and assets relating to the DSO project, carry out detailed engineering and facility construction, and will be responsible for the project's operations. Tata Steel will own 80% of the JVC and NML the remaining 20%.

In September, Tata Steel, through its wholly-owned subsidiary Tata Steel Global Minerals Holdings Pte Limited, signed a joint expression of interest with the government of Laos for the identification and evaluation of iron ore and coal mines in Laos.

It also increased its stake in Riversdale Mining Limited, the listed entity in Australia, from 21.1% to 24.4% by way of open market purchases. The stake hike was again routed through Tata Steel Global Minerals Holdings Pte Limited.

Tata Steel's managing director HM Nerurkar said that the Indian steel market expects to see robust demand from construction, infrastructure and auto sectors in the coming quarters. To meet the higher demand, the company is expanding its steel capacity by three million tonnes in Jamshedpur.

With regard to its European operations, Tata Steel Europe's MD Karl-Ulrich Kohler said the demand outlook in Europe is uncertain and it would continue to focus on controlling costs.

Meanwhile, JP Morgan in a report on Sunday raised its target price on India's Tata Steel to Rs665 from Rs605, claiming that the steelmaker's fiscal year 2013 story was intact. However, it added that slow demand in European on account of the ongoing debt concerns in the region and the proposed issue of securities worth up to Rs7,000 crore remained a matter of worry.

However, Elara Capital, another brokerage firm while recommending a BUY on Tata Steel reduced the target price to Rs645 on account of pressure on the company's European operations. The brokerage is yet to take a call on the Tata Steel's proposed funds mop-up as the development is still in the initial stages.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).
 

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HSBC says private banks to start outperforming public banks

HSBC says its time to buy private sector banks over public sector banks based on better bottom-line performance, quality of growth, higher margins

HSBC Global Research says the time is right for private banks to start outperforming PSUs. In a report dated 11th November, it underscores this proposition by pointing out the difference in the bottom line performance in Q2FY11(in its coverage universe) between private and public sector banks. While private banks grew 30%, PSU banks grew just 8%.

The second thing going for private banks, the report says, is that while asset quality pressures will continue and top line growth will moderate for PSU banks, the opposite will happen for private banks. Some other parameters on which private banks score over PSUs, HSBC says, are:

- Loan growth is trending sharply upwards for private banks.

- Margins are higher.

- Gross non-performing loans (NPLs) are on the decline, which will lead to lower provisioning pressure.

- Return on Assets (RoAs) are higher.

- Higher deposit growth.

- Higher CASA (current account savings account ratio).

- Higher loan-to-deposit ratio.

The report also points out that while "earnings growth at 25% CAGR from
FY10-13e and ROA expansion are similar for both PSU and private banks, the
contributors are quite different. While margin and fee growth are the
drivers for private banks, it is mainly lower provisions driving PSU banks."

Another point that is in favour of private banks, HSBC believes, is that PSU
banks have shown a 60% YTD outperformance over private banks and they now trade at 10-year high multiples (private banks are still at about their five-year averages). Hence, there is scope for private banks to rise higher.

Incidentally, some areas where PSUs score over private banks, HSBC says, are:

- Slightly lower cost of funds, and

- Higher RoE.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).

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Great Interviews


I take this opportunity to congratulate you for the splendid interviews of
Mr. Jignesh Shah...

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