Edelweiss Financial Services has a buy call on Tata Steel with a target price of Rs 720.The current market price of Tata Steel is Rs 499.25.Time period given by the brokerage is one year when Tata Steel price can reach the defined target.
Investment rationale by the brokerage:The European Commission (EC) has stopped the clock in its in-depth investigation (Phase-II) on the proposed joint venture (JV) between Tata Steels (TSL) European operations and ThyssenKrupps (TK) Steel Europe division pending certain details from both parties.
We believe this is not a cause for concern as: 1) such procedures are commonplace in big transactions like the one in question; and 2) both parties are expected to provide the required documents in a few days.
While we do not rule out additional pressure on the TSL stock until the investigation resumes, at this stage we do not believe the deal deadline would be missed materially.
Maintain BUY on TSL with an unchanged target price of Rs 720.EC holds deal investigation: The EC would resume Phase-II investigations on the proposed JV between TSLs European operations and TKs Steel Europe division pending certain information.
We see this as a routine procedure that both companies are expected to comply with in a few days.
At its Investor day held recently, TSL mentioned that both parties are engaging in constructive discussion with the EC.Complex transaction- clearances needed in 17 jurisdictions: We understand that the ongoing JV is a complex transaction requiring clearances in 17 jurisdictions.
The first approval has been already received in the US on 7 November, 2018, and the work on obtaining clearances is underway in other regions such as Asia, South Africa, and South America, Brazil.
However, the ECs approval is critical as the merger will create the second-largest steel player in Europe.Outlook and valuation- nothing to worry; maintain BUY/SO: We believe that the investigation is routine and despite the EC being closed on account of holiday from 20 December, 2018 to 7 January, 2019, the deadline for the deal is unlikely to be missed materially.
Maintain BUY on TSL with a target price of Rs 720.