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Feb 14, 2013 05:22 PM IST | Source: CNBC-TV18

IIFL bullish on Tata Steel, JSPL & NMDC

Tarang Bhanushali of IIFL recommended buying Tata Steel, JSPL and NMDC in an interview to CNBC-Tv18. He is overweight on Tata Steel post the results and says, “JSPL‘s steel business has also done quite good and we find value in it”. For NMDC he gives a target price of Rs 182.

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Tarang Bhanushali of IIFL recommended buying Tata Steel, JSPL and NMDC in an interview to CNBC-Tv18. He is overweight on Tata Steel post the results and says, "JSPL's steel business has also done quite good and we find value in it". For NMDC he gives a target price of Rs 182.

Below is the verbatim transcript of his interview to CNBC-TV18

Q: We have got quite a mix of brokerage opinion coming in for Tata Steel. Are you betting on any kind of improvement at all after the numbers that you saw this time around?

A: According to yesterday’s quarterly numbers we do not feel that the miss was there on the operational front. We believe that on the operational front, the company reported inline numbers. The only impact was one offs like forex loss. This was included in other expenditure and restructuring cost in its European operations which dragged the operating profit down below the estimate.

Miss on the bottomline was because the other income dropped sharply and there was an increase in interest expense. The operational performance was pretty much in line. Over the next two quarters, the operational performance would get a boost from the increase in volumes from their new capacity. The steel realisations have improved on a quarter on quarter (Q-o-Q) basis. The external purchase of coke which we had seen pulling down margins over the last two quarters would be quite lower.

They have already commissioned the coke oven batteries. So, by these three points we believe the EBITDA per tonne would increase by Rs 2,000-3,000 over the next one to two quarters.

Tata Steel would be back on track reporting an EBITDA per tonne of more than Rs 15,000. So, this is where the value would come into Tata Steel. We are again overweight on the stock and maintain our buy recommendation on it post the results.

Q: If you are tracking JSPL, how would you approach it?

A: JSPL’s steel business had done quite good. Again, the operating front was impacted by a forex loss. On the power front, the grid issues related to the North East grid had led to lower evacuation of power. That pulled down the volumes at that front. The company has indicated that it has already ramped up the production from 81 percent plant load factor (PLF) to 91 percent. By next quarter, we expect to touch the 100 percent mark.

We are quite confident on it. If the mining lease which is pending for the last one quarter is signed with the Orissa government that would be a big value driver for the company. The company is also going to commission its 1.6 million tonne capacity in Angul. That would lead to a volume growth in the second half. So, we are quite confident that the company would deliver numbers from the second half of FY14. We find value in it and again have a buy recommendation on the stock.

Q: What about something like NMDC? Now we hear that NMDC will move into the Nifty as well. Do you have any kind of recommendation there on the upside?

A: We like NMDC purely because we feel that the domestic market, iron ore situation would not ease out. The market would continue to remain tight because of the regulatory implications. That would help NMDC to maintain the prices at current levels.

If we see a U-turn in the global iron ore prices then maybe NMDC would be able to increase the prices. In the last two quarter numbers, volumes were impacted because of heavy rainfall. That had led to the miss on volumes. The company yesterday indicated that January was the best monthly production they had over their history.

They were quite confident of offsetting the losses in volumes by ramping up production in this quarter. We believe that the volume push in this quarter and maybe FY14 with new mines commissioning and the union flow system, would see volumes going higher by one-two million tonne.

At the current valuations, it is trading at 3.5x FY14 – EV/EBITDA which is quite attractive compared to the other minors were also historical numbers. So, we have a buy rating on the stock. We have a target price of Rs 182.

Q: What is the trajectory that you are expecting in terms of gross NPAs? How many more quarters of a 5 percent plus gross NPAs do you think SBI could see?

A: I believe this year at least will end above 5 percent. However, then going forward we should see the reductions, upgradations to be stronger. So, incremental slippages should get offset with that. So, the number may not rise from there substantially after this year-end or so.

Q: What is your call on SBI and the recommendation now?

A: We also have a target of Rs 2,700 on the stock. We believe that these dips from a longer term perspective are good entry points on the stock.

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