Uttam Galva a good deal

The Company-:
Uttam Galva Steels, a leading domestic producer of value added steel, procures raw material like hot rolled coils (HRC) from primary steel producers and processes it to make value-added products such as cold rolled steel, galvanised products and colour- coated coils and sheets.
Uses of products-:
These products are used in the auto industry, consumer durables and engineering products among others, and yield higher prices compared to the traditional steel products or crude steel.
Deal-:
Arcelor Mittal Netherlands, (a wholly-owned subsidiary Arcelor Mittal) has become a co- promoter of uttam galva. Arcelormittal has agreed to buy 5.6% in Uttam Galva from the existing promoters and an additional 29.4% through the open offer to take its total stake to 35% stake.
Synergies-:
Uttam Galva steels currently has a capacity to produce one million tonnes of value-added steel for which it depends on other players for its raw material requirements, mainly sourced from overseas. according to estimates, over 50% of Uttam Galva's raw materials requirements are sourced from Arcelor Mittal which is the world's largest steel making company. with this deal, Uttam Galva will benefit due to the access to secured and timely supply raw materials and higher technologies required for value added products, since large steel companies are getting inclined to manufacture and sell their own value-added products. it has resulted in increased competition for players like Uttam Galva. thus, help in combating the emerging competition. this deal will help ArcelorMittal in many ways "for Arcelormittal, it is a low cost acquisition which will provide ready access to existing clients in the value added space in international and domestic markets. Uttam Galva generates about 60% of its revenue from the export market by supplying its products to customers in more than 143 countries. including the US and European markets, where it is a already an established player with its products approved by major international companies. in domestic market, as the demand for value - added steel is growing in India and expected to grow even higher in coming years the deal with Galva will provide Arcelormittal a platform in India. this deal could help in exploring the opportunities and in establishing a manufacturing base early in the Indian market.
Conclusion-:
While it is too early to say what plans the company and its promoters have store, investors may be well off keeping away from the stock. At Rs 133, the company's market capitalisation work out to Rs 1652 crore which along with the rs 1410 crore debt translates into an enterprise value of Rs 3062.9 crore. the latter is almost 8.5 times the company's reported EBIDTA for 2008-09. even on the basis of PE multiple, the stock is currently trading at 15 times the estimated 2008-09 earnings. it is looking very expensive at this price. i think, at this price one should get out of the stock because there are better alternatives available in the market.
Margin Pressures-:
in Rs crore-
FY-08 FY-09 Q1 FY 10E %change y-o-y
Sales 3156 4372 1073 35.3
EBIDTA 301 365 103 6.9
EBIDTA(%) 9.5 8.3 9.6 -225BPS
Interest 114 166 34 -20.8
Net profit 124 100 35 30.0
EPS(Rs) 8.8 7.3 2.6 46.7

E - Estimate