Stock Review : Uttam Galva Steel

Will Mittal factor change the fortunes for Uttam Steel ?

Stock : Uttam Galva Steel

CMP : 113

Book Value: 71.04

EPS (Trailing) : 9.49

As the performance of the stock suggest, Markets had a clue about it ! Uttam steel has already risen by 83% in just One month.  The stock has more than doubled in last 3 months. So what’s the buzz !!!  Global Steel King L.N. Mittal is making a debut in India by acquiring 35% stake in Uttam Steel.

Mittal’s company Arcelor Mittal is all set to become the Co-promoter of the company. The promoters have signed an agreement to sell 5.6% stake in Uttam steel.  Arcelor Mittal will launch an open offer on September 7 to acquire balance 29.4% stake in the company. Mittal is offering a price of Rs. 120 per share for acquiring this stake.

If the offer by Mittal remains unsubscribed, the promoters would transfer further stake to Mittal so that both have equal stake in the company.

 

How will this deal help Uttam Steel ?

Apart from giving foothold to Arcelor Mittal in Indian Steel sector, the deal would be a facelift for Uttam steel. The association with Mittal is surely going to be big boost to the brand name of Uttam steel.

Uttam steel is set to get better availability of Raw Material. The company already sources around 50% of its raw material from Arcelor Mittal.

It will also have an opportunity to transform itself from a galvanized steel producer to a integrated Steel major. It will have access to latest technology from Arcelor Mittal and access to new product segments and geographies.

 

Demerger of Power Biz

Another important development is that recently  the Bombay high court has sanctioned the scheme of arrangement between Uttam steel and power and Uttam Galva Steel for the demerger of the power division of Uttam Steel and power into the company. The Scheme has got effective from 21st August,2009.

The demerger of power division will help separate listing of this entity and help shareholders to unlock the value of their investment in the company.

 

Current Financials

For the Year ended 31st March, 2009 company posted a top line of Rs. 4372 Crore and Net profit of 100 Crore.  Though this was a growth of  over 38% over last year, the profit were lower by 24 Crore on account of high interest outgo and higher operating costs.

Uttam steel clocked a turnover of 1073 Crore for the first quarter of the current year and a Net profit of 34.57 Crore.

Investment Guru is of the view that both the developments i.e., Acquisition of 35% stake by Arcelor Mittal @ 120 per share and Demerger of power division hold good omen for the company and would not only boost its brand image but also enable it to log a impressive growth in coming years.

32 comments:

Sameer said...

If Arceleor Mittal is buying the stake @ Rs 120, then I think stock will soon touch Rs. 200. What are your views ?

Anonymous said...

your face..dont speculate too much

Narendra said...

Dear Sir,

I am following your blog and suggestions for a long time now.
Based on your advice, I had invested in Teledata almost 1.5-2.0 years back (I think April 2007) when it was at almost Rs.90!
After that it has drastically come down and never moving up. It demerged into 3 companies and the shares of the first demerged entity took many months to get listed. The other one is not yet listed and there is no news on when that will happen!!
So, all the investors are in great loss.
I am not blaming you for suggesting that stock.

But, the only concern is that, after the recommendation, you never mentioned that again in your blog!!
When a recommendation does good, everybody wants to take credit. I think, it is important to own up the responsibility and guide the followers of your blog as to what to do with this dud stock? What is the price to exit?

Thanks,
Narendra

Anonymous said...

One more circuit for sure in Uttam Galva. Sell if the stock reach 140 and reenter at lower price for long term.

rishab said...

Hi Rajesh,

I want to invest in Uttam steel with a horizon of 2-3 years. What is the return that I can expect ?

Thanks,
Rishab

sumit said...

Don't get over excited as the stock has already doubled in last one month....it has already factored the Mittal acquisition. Sell at CMP

abhay kumar said...

if you are long term investor hold on for 2-3 years and enjoy super returns...mittal is going to take this company to a different level altogether...mark my words.

Rajesh Soni said...

Hi Sameer,

I would not comment on near term target, but some steam is still left.

However, please understand that Mittal has invested in a business and he is paying a premium to buy a fully operational and profitable company. Plus he has strategic reason to invest in Uttam steel to garner synergies with arcelor's operation.

So he is here for a long term association and hence any investor who wants good return and belives in leadership skills of Mittal should eye a long term holding in this stock plus one should keep track of developments in the company.

Rajesh Soni said...

Hi Narendra,

It's nice to see a comment from you after a long time. Good to see old timers on the blog.

I appreciate your concern raised on Teledata stock. But my friend, you need to learn few lessons.

First, Never invest in a scrip just by reading a blog or website or viewing a channel. You should read it to get a perspective. and invest only once you see a convincing reason to invest. And once you are convinced , forget whose advise you have followed as ultimately it was your decision. I may sound bit harsh, but stock market is not a place for friendships or emotions, it is place for making a sound judgement.

Second lesson is never love your stocks. If you had bought the stock at Rs. 90, you must have put some stoploss based on your risk profile.

Third, Please understand that I neither disclose my positions on the blog nor I claim to post all my trading or investing moves. I discuss stocks to give some thoughts to the readers. There are number of readers and I cannot judge who has invested based on my posts and how would he deal with it going forward.

Forth, Never hesitate to contact me on email. I may not update a stock on regular basis , but I would always welcome queries from the readers on any stock discussed on the blog. I may not reply to emails instantly, but I would definitely respond. You can email any future queries at rasoni@gmail.com.

Coming to your actual question, I have posted two times on this stock and both the times I have placed it as a risky bet. I have personally earned handsomely on this stock and also lost handsomely like you did : ) The company is a profit making one, but as I mentioned in my earlier post the biggest disadvantage is the concern on promoters and till something happens on this fromt the stock will continue to be traders paradise and can be very volatile.

My advice to you is that since you have not much to loose on this stock at current levels, I would suggest that you keep it for some more time and if some momentum comes try to minimise your losses.


Please feel free to discuss if you need further clarifications.

Rajesh Soni said...

Hi Rishab,

The stock is being rerated for its association with the Mittal's and if everything works well may pay good reward to the shareholders in the long run. At this stage it would not be correct to assign any long term price. Right now you may enjoy the welcome party of Mittal : ) and let it found its earth.

Rajesh Soni said...

Hi Sumit,

You have made a very good point. The stock has already zoomed in anticipation of deal and will now search a level to cnsolidate ...it may be anywhere between 90-150.

Rajesh Soni said...

Hi Abhay,

At this stage , it looks that the company would benefit from the association.

Anonymous said...

Wait for price to settle, Buy @90 for long term.

Anonymous said...

Hi sir,
What are your views on IDFC and Yes Bank ?

vishwas said...

Hi Rajesh,
Thanks for giving your outlook on the stock. I hold 500 shares of First Source solutions. The average buy price is Rs. 35. The stock has stopped moving since then. What's your view on this ? Will it go up or should I exit?

Anonymous said...

Hi Sir,

I have 100 shares of MIC electronics @ 45. Currently trading at 56. CNBC is suggesting a target of 65. What is your outlook ?

Thanks,
Manoj

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Anonymous said...

Hi Narendra,

Just to add to what Rajesh told you about teledata, currently trading at around Rs7, invest now to average out your investment and once the share moves up by 2 to 3 rs sell the stock, this way you can nullify the loss with investment at higher cost.

its a suggesation, invest at your own risk.

Anonymous said...

When is the open offer closing ?

Puneet said...

Your feedburner doesnt seem to be working

Rajesh Soni said...

Hi Puneet,
Thanks for pointing it out. It's up and running now !

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