For TS, 268-282 may be a good resistance zone
Although the proposed UK deal may help the Co in reducing cash burn,
its too small amount for any significance deleverage for TS
CMP: 264
Sell either break below 262 or on rise around 268-282;
TGT: 236-223-215 (1-3M)
TSL>285
Note: Technically, for TS, consecutive closing above 285 for any reason, the stock can further rally towards 295-300 & 320-340 area in the near term. This is purely a technical trading idea, based on price action for some recent new flow.
TS and all the other metal/steel sectors are in news for the last few weeks due to Govt's initiative to provide adequate protection of domestic steel manufactures from Chinese aggression.
Moreover, TS came to the limelight amid news flow of its UK long products division sale negotiation to Greybull Capital. Though the negotiation is not finalized and a LOI has been executed, as par reports, the deal value may be near GBP 500 mln. In consolidated BS of TS, this long products div has zero BV and as par some estimates, this is causing around $160 mln annualized loss for TS.
Thus the deal amount is too small wrt TS's huge consolidated debt of around Rs.72000 cr as on Q2FY16, which is double its NW.
Although, there is some uncertainty about whether the deal goes through and what price, the proposed sale of this loss making long products units may help TS certainly to reduce its current cash burn. But the deal amount is not so significant for overall deleveraging effort of the company.
As par analysts at Jefferies, most EU steel companies are trading around 0.2-0.5 x P/B, the turnaround investor (Greybull) is unlikely to pay a strategic premium for this long steel products assets of TS in UK. Also, there are many headwinds for steel industry in EU/UK for currency volatility, unfavorable demand supply situation and Chinese imports.
Analysts are also of the opinion that although, the above potential deal could help curtail loses at TSE partly, there are other UK units, which continue to weigh on its EBITDA.
Over the years many Indian corporates, went into globalisation spree at 2007-08 recession price, but even that is now causing headwinds for its BS as most of these overseas assets are either making loses or negligible profits and ROE is far less than standard in the domestic market. Thus the Indian companies are trying to exit at any cost, even in loss to repay massive debt.
For TS, this UK deal news was there in the market for the last few days even before official announcement and that's why the stock broke the previous strong resistance zone of 250 and now trading around 265. Still this is more than 32% rally in the last three months from its recent bottom of around 200.
Technically, if TS fails to sustain above 268-282 zone, it may consolidate and a fall below 262, it may again come down to 223-215 zone in the near term, from where one can again buy for portfolio investment, considering the favorable risk reward ratio.
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