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Tata Steel's Rs 12,800 crore rights issue sets sail; Should you hop in?

Tata Steel's much-awaited Rs 12,800-crore rights issue opened for subscription on Wednesday.

The issue, which will close on February 28, comprises 15,53,94,550 crore fully paid-up ordinary shares not exceeding Rs 8,000 crore at Rs 510 per scrip, and up to 7,76,97,280 crore partly paid-up ordinary shares not exceeding Rs 4,800 crore at Rs 615.

"The board approved issuance of equity and equity-linked instruments, including ordinary shares of the company, by way of a rights issue to existing shareholders on record date for an amount not exceeding Rs 12,800 crore," Tata Steel had said in a statement earlier.

The entitlement ratio for the fully-paid component is four shares for every 25 ordinary ones and two shares for every 25 ordinary scrips in the partially paid-up section.

The company had fixed February 1 as the record date for the right issue.

Amar Ambani, Head of Research, IIFL, said, "We have raised our target price to Rs 835, incorporating the increase in standalone earnings, rollover to FY20 and the impact of equity dilution (rights issue). We would recommend subscribing to the rights issue."

He added: "Margins of Tata Steel are expected to improve due to improvement in steel prices, higher volumes and no one-offs in Q4. Steel spreads have been improving due to revival in demand and lower dumping from China. We have marginally upgraded our standalone estimates factoring in stronger steel prices for H2 FY18. JV with ThyssenKrupp will enable the company to focus on growth opportunities in India. Debt levels are expected to decline led by selling of non-core assets, lower cash burn in Europe, strong cash flows in the domestic operations and equity raising through rights issue."

Tata Steel was trading 0.45 per cent up at Rs 715.70 at around 10.04 am (IST). The scrip opened at Rs 718 and touched high and low of Rs 720.60 and Rs 710.95, respectively, so far.

Benchmark BSE Sensex traded flat, up 22 points, or 0.06 per cent, at 34,322.61.

Tata Steel on February 9 reported a five-fold rise in consolidated net profit to Rs 1,135.92 crore for the third quarter ended December, up from Rs 231.90 crore in the previous fiscal, it said in a BSE filing.

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The Economic Times