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Tata Steel
Tata Steel
Prashant Gala Harshad Sampat Tushar Birje Prathamesh Nerkar Nishant Kolapkar
Introduction
A part of TATA conglomerate. Worlds 11th largest steel company. Annual capacity of 31m tonne. Indias largest private sector measured by domestic production. Important player in economic & industrial development of India. Acquired European steel major CORUS in 2007. A 100 year old org.
Net sales have grown by average annual rate of 16% over past 10 years Net profits have grown by average annual rate of 29% over past 10 years.
29%
27%
Certain Questions..
Q.1 - What exactly the company does? Q.2 - Is it a low risk business? Q.3 - Is there a room for future growth? Q.4 - Does the co. generate strong free cash flows? Q.5 - Dividend History. Q.6 - Is the business capital intensive ? Q.7 - Is the mgmt known for its capital allocation skills & integrity ? Q.8 - Is the management shareholding strong enough? Q.9 - What has mgmt done with the free cash in the past? Q.10 - Are management salaries too high ?
Intrinsic Value
Intrinsic value True value of an asset. Not a Market value. E.g. - Onion price went upto INR 50 but its real value was INR 10. Intrinsic value isnt a definite figure but just a calculated value. Figure changes as estimates of variable like future cash flows are revised (given that the future is unknown).
Recommendation
Fair value after margin of safety Rs 360/ Current market price Rs 470/- (17th Feb 2012). Market price > Fair Value, so value investor may want to avoid the stock at CMP. Note Share price as of 2nd Jan 2012 was Rs 341/-