Buy, Sell, Hold: 2 stocks and 1 sector are in focus on February 20, 2018

Tata Steel, Reliance Industries and steel sector are being tracked by investors on Tuesday.

Tata Steel

Brokerage: PhillipCap | Target: Rs 910

The brokerage house said that acquisition costs for Bhusan assets could be lower than reported after adjusting working capital recovery. Further, a potential to improve profitability via synergies is significantly higher, it said, adding that the acquisition is a strategic fit.


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Brokerage: Morgan Stanley



The research firm said that key point for Tata’s acquisition of Bhushan assets will be deal value Eq stake. It also highlighted that potential to expand capacity will be key considerations for Tata. It sees debt rising to USD 17 billion in FY19.

Brokerage: Macquarie | Rating: Outperform

Macquarie said that it is calculating EV/EBITDA for Bhushan Steel At 6.3–7.6x FY19E Vs Tata At 7x. It estimates that the acquisition would increase Tata’s net debt to 4.6 times FY19. Further, it believes that stock correction on headline bid value is making risk-reward attractive.

Reliance Industries

Brokerage: Jefferies | Rating: Underperform | Target: Rs 790

The global research firm said that average revenue per user (ARPU) may remain soft for now, while price competition could remain high in urban areas. Further, refining and olefin margins could soften in 2018-19. Going forward, higher gross refining margins and telecom revenues could be upside risks.

Steel

Brokerage: CLSA

CLSA said that valuations for Bhushan assets are above Tata’s own expansion cost. Further, a favourable deal structure could still be a value creation. Inorganic expansion may not come as cheap as we initially envisaged. It remains positive on India’s steel industry given tightening demand-supply.

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