The company has indicated that it will finalise plans to expand the capacity by about 750 MW (phase III & IV) at the same location. It also said that the proximity to Krishna river and anticipated higher KG basin output will alleviate water and gas issues. The research house has assumed earnings of Rs 71.7 crore from this plant in its FY10 estimates assuming merchant tariff and sale of about 610 million units. If LITL is able to operationalise the plant, sourcefuel, and execute merchant sales for the entire capacity, then there could be upside risks to earnings forecasts. At recommended price of Rs 420, the stock is trading at 2.8x FY10E and 2.2x FY11E book value.

Tata Steel

CMP : Rs 469
Target price: Rs 540
Upside: 15%
Brokerage: Deutsche Bank

The stock has been upgraded to buy based on three factors. The first is the view that the worst is over for Corus and that each quarter at Corus should be incrementally better, following the record negative EBITDA of $387 million in June quarter FY10. The second is a 132 per cent CAGR in consolidated EPS over FY10-12E, and finally an attractive valuation – the stock currently trades at a FY11E EV/EBITDA of 4.9x, an 18 per cent discount to the average valuation of its global peers. Worries over long-drawn earnings uncertainty at Corus have been a key stock overhang since late last year.

Nascent recovery in steel consumption in Europe, a rising capacity utilisation rate and a decline in coking coal prices should drive an EBITDA turnaround at Corus. We forecast Corus EBITDA to rise at a CAGR of 260 per cent over FY10-12. Tata Steel’s India operations (among the most competitive in the world) look set to benefit impressively from aggressive organic growth. EBITDA at Indian operations is likely to rise at 21 per cent CAGR over our forecast period. Increasing production in India should result in Indian operations constituting an overwhelming 67 per cent of consolidated EBITDA by FY12 from 46 per cent in FY08 when Corus was acquired.