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21 April 2014

Update | Sector: Metals

Tata Steel
BSE Sensex S&P CNX
22,277 6,675 CMP: INR414 TP: INR531 Buy

Stock Info Risk to Indian business margins abating


Bloomberg TATA IN KPO to accelerate volumes, drive re-rating; upgrade to Buy
Equity Shares (m) 971.2
52-Week Range (INR) 435/195  Risk to Indian business margins abating: Tata Steel India’s (TSI) margins are
1, 6, 12 Rel. Per (%) 19/19/20 likely to benefit from improved domestic steel pricing outlook and lower
M.Cap. (INR b) 401.8 costs driven by softening coking coal prices in international market. These
M.Cap. (USD b) 6.7 positives are likely to offset any pressure, which may be inflicted by
downward bias on international steel price, driven by oversupply of iron
ore. Thus, we are increasingly being convinced that TSI’s margins are more
Financial Snapshot (INR Billion)
likely to sustain. Acceleration in world steel demand, outside China, will
Y/E March 2014E 2015E 2016E
Net Sales 1,485.81,525.61,560.7 boost steel exports from India and prevent oversupply in India. Also,
EBITDA 163.0 191.7 208.6 regional premiums will strengthen in India.
Adj PAT 36.8 54.3 67.3  Early signs of India steel demand hitting a bottom: Although JPC data
EPS (INR) 36.1 54.1 67.4 continue to imply demand slowdown, our channel checks indicate that the
Gr. (%) 2,199.5 49.8 24.7 demand for rebar/TMT, used in construction, has improved over the last
RoE (%) 15.9 20.3 20.7 three to four months. Our survey of steel producers suggests that they are
RoCE (%) 9.4 10.9 11.4 witnessing some improvement in offtake.
P/E (x) 11.6 7.8 6.2  Raising estimates for TSI: We upgrade the average Indian business steel
P/BV (x) 1.8 1.4 1.2 realization by INR470/t and INR600/t to INR45,000/t each for FY15E and
EV/EBITDA (x) 6.9 5.8 5.3 FY16E respectively. Coupled with cost benefits, EBITDA/t is raised by USD23
and USD27 to USD241/t and USD240/t respectively.
 TSE&OS will stop leaking cash flows: We believe that TSE (Europe) is likely
Shareholding pattern (%)
to benefit from cyclical upturn in European demand, focus on reducing cost,
As on Mar-14 Dec-13 Mar-13
restructuring and stable capex intensity. We expect TSE&OS to stop being a
Promoter 31.4 31.4 31.4
drag on free cash flows and possibly generate free cash flows in FY16.
Dom. Inst 25.4 25.3 27.2
 Net debt/EBITDA ratio has peaked: Improved operating cash flows, no
Foreign 18.4 19.1 16.1
Others 24.8 24.2 25.3
further step-up in capex and recent sale of assets will deleverage the
balance sheet, in our view. We expect net debt/EBITDA ratio to gradually
decline to 3.4x by end-FY16. As benefits of Kalinganagar Project in Odisha
Stock Performance (1-year) (KPO) start kicking in during FY17, gearing will decline faster.
 Upgrade to Buy with 30% upside: Consolidated EBITDA will post a CAGR of
13% over FY14-16E to INR209b driven by volume growth in Indian business
and gradual recovery in TSE&OS margins. We raise the target price to
INR531 (earlier INR268) on improved margin and higher target multiple of
6.5x (v/s 5.5x) for Indian business. Improved visibility on volume growth
from new projects and abating risk to margins are likely to re-rate the
Indian business. Further, we upgrade the rating to Buy as we believe there
is no further stretch on balance sheet, while cash flows will keep improving
on acceleration in volume growth in the high margin Indian business. The
target price of INR531 has an upside of 30% at CMP.

Sanjay Jain (SanjayJain@MotilalOswal.com); +91 22 3982 5412


Investors are advised to refer through disclosures made at the end of the Research Report.
Tata Steel

Tata Steel India: risk to margins abating


Odisha project to accelerate volumes, drive re-rating

Tata Steel India’s margins Tata Steel’s (TATA) margins of Indian business (TSI) are likely to benefit from
are likely to sustain improved domestic steel pricing outlook and lower costs driven by weakening
coking coal prices in the international market. These positives will likely offset any
pressure which may be inflicted by downward pressure on international steel prices,
driven by oversupply of iron ore. Thus, we are increasingly being convinced that
TSI’s margins are more likely to sustain.

Early signs of demand Indian long products witnessed a surge in prices in the seasonally weak month of
improvements in India April this year, bucking the old trend. Although JPC data continue to imply demand
slowdown, our channel checks indicate that the demand for TMT, used in
construction, has improved over the last three to four months. Indian steel mills
lowered flat product prices in April on import pressure. The pressure from imports
has eased now. The downside risk to average steel price realization is abating.

Softening coking coal prices Slowing growth in Chinese steel demand continues to pose a risk to international
are reducing costs steel prices driven by falling coking coal and iron ore prices. However, there may not
be a similar risk to margins of primary steel producers in India as weaker prices of
coking coal help reduce costs.

Iron ore oversupply may be Weaker prices of iron ore in international market can affect steel prices and margins
limited due to high level of of Indian steel producers, for example the Indian business of Tata Steel (due to
consolidation. Expected rise captive mine). Downward pressure is likely on global iron ore prices as supply grows
of region premiums will
but in a limited way. Global iron ore supply still remains highly concentrated in the
cushion downside risk to
hands of four suppliers who control 75% of seaborne trade. According to BREE
margins
estimates, seaborne world trade in iron ore will increase by 90mt only (v/s our
previous estimate of 130-200mt) to 1,315mt in CY14 as many projects are either
shelved or running behind schedule. Further, big four iron ore suppliers are
reorienting their strategy towards low cost projects and deleveraging of balance
sheet to prepare for uncertainties, as the largest consumer in the world is slowing
down. We believe that iron ore prices can sustain at a little higher level of
USD90/dmt FOB Australia v/s our earlier expectation of USD83/dmt (please refer
our sector update dated August 29, 2012). Thus, the downside risk of iron ore prices
is ~USD17/dmt. Hence, the cost of production for non-integrated marginal steel
producer can see a maximum correction of USD25-26/t (1.7x of iron ore prices) on
account of weaker iron ore prices alone. This can be well covered by the increase in
Indian premiums, in our view. Indian steel demand growth, which appears to have
hit a cyclical bottom, is likely to accelerate and drive up regional premiums.

We upgrade realization, We upgrade the average Indian business steel realization by INR470/t and INR600/t
margins estimates and to INR45,000/t each for FY15E and FY16E respectively. Hence, the EBITDA/t is raised
target multiple by USD23 and USD27 to USD241/t and USD240/t respectively. Steel sales volumes
are expected to increase by 3.5% YoY to 8.9mt in FY15 on further ramp-up and by
6.2% YoY to 9.8mt in FY16 on commissioning of the 3mtpa KPO (Kalinganagar
Project in Odisha). The KPO will open a new center of volume growth in a high

21 April 2014 2
Tata Steel

margin business for next five to 10 years as the layout is designed keeping in mind
future growth requirements. Improved visibility on volume growth and abating risk
to margins is likely to re-rate the Indian business. We raise the target multiple to
6.5x (earlier 5.5x) for Indian business.

Indian mills cut HRC prices Indian HRC import parity price in Mumbai (INR/t, exl. ED & VAT)
in April under import 43,000
pressure, but the pressure
40,000
has now eased
37,000

34,000

31,000

28,000
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13
Apr-10

Apr-11

Apr-12

Apr-13

Apr-14
Dec-09

Dec-10

Dec-11

Dec-12

Dec-13
Source: MOSL

Indian rebar prices are Indian rebar prices in Mumbai (INR/T, exl. ED & VAT)
moving up in a seasonally 41,000
weak quarter against
historical trend 39,000
37,000
35,000
33,000
31,000
Jan-11

Jan-12

Jan-13

Jan-14
Jul-11

Jul-12

Jul-13
Oct-11

Oct-12

Oct-13
Apr-11

Apr-12

Apr-13

Apr-14
Source: MOSL, SteelMint

Indian steel demand growth has come to a grinding halt in FY14. The growth rate at
0.6% is among the slowest one in demand seen in the last 20 years.

Indian steel demand growth (%)


21.3
14.4

13.9

13.3
12.9

11.9
11.4
9.8
8.0
7.6

7.0
6.9
6.6

6.0
4.9
4.1

4.0
3.8

3.3
3.2
2.2
1.9

0.6
0.4
FY94
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17

Source: MOSL, JPC

21 April 2014 3
Tata Steel

Looking closer during FY14 on YTD demand growth, it is evident that Indian steel
sector hit the lowest point in May 2013. Demand remained subdued until October
2013, which coincided with weak pricing trend. However, steel pricing and demand
has improved thereafter marginally leading to an improvement in pricing scenario.
Our survey of steel producers suggests that they are witnessing some improvement
in offtake.

Closer look at data suggests Steel demand growth (%) YTD since April 2013
marginal improvement in 3.54
demand. This is also
buttressed with channel
checks
0.80 0.69 0.58 0.60
0.22 0.23 0.35 0.42 0.48

-0.77

Jul-13

Aug-13

Oct-13
Apr-13

May-13

Nov-13
Sep-13

Feb-14
Jan-14
Jun-13

Dec-13
Source: MOSL, JPC

Indian steel mills are likely to benefit from sharp growth in coking coal supplies,
softening prices and easing of demand pressure from China.

Sharp increase in coking Coking coal supply (mt)


coal supply… 328
314 321
290
273 274

222 220
208
196 192
186 181 186
173
CY01

CY02

CY03

CY04

CY05

CY06

CY07

CY08

CY09

CY10

CY11

CY12

CY13

CY14E

CY15E

Source: MOSL, BREE

…has exerted pressure on Coking coal prices in spot market (USD/t, FOB Australia)
coking coal prices and
Spot coking coal (fob Australia)
reduced costs for 300
Indian mills
250

200

150

100
Aug-11

Aug-12

Aug-13
Oct-10

Oct-11

Oct-12

Oct-13
Apr-11

Apr-12

Apr-13

Apr-14
Feb-11

Feb-12

Feb-13

Feb-14
Dec-10

Jun-11

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Source: MOSL

21 April 2014 4
Tata Steel

Over 2006-13, world trade in coking coal has increased by 63% or 122mt to 314mt.
China alone has absorbed 70% of the growth in supply over last seven years, while
rest of the world absorbed the remaining 38mt largely to compensate for the
reducing coke exports from China.

China absorbed most of the Coking coal imports (mt)


growth in coking coal
101 104
supply. However, slowing 93
growth in pig iron
production will ease the 71
pressure 48 45
34

9 10 12

CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14E CY15E

Source: BREE

Coking coal supply will still grow by at least 7mt each in 2014 and 2015 as Australian
miners remain committed to deliver new projects at low costs to feed eventual
growth in Indian consumption of coking coal. Slowing growth in China’s pig iron
production will ease the demand pressure thus benefiting Indian steel mills.

World steel demand growth is expected to accelerate, outside China, aided by


improving demand in western world and MENA countries. Indian mills are better
placed to tap the export market due to superior product quality and geographical
proximity to western world and MENA countries, compared to Chinese competition.
We expect Indian steel mills on western coast of India, such as JSW Steel and Essar
Steel, to continue to focus on exports and prevent an oversupply in domestic
market. Overall, we expect Indian pricing scenario and premiums to improve from
FY15 onwards.

World steel demand growth World steel demand growth rate (%) outside China
is expected to accelerate
22.5
outside China
8.7
3.9 6.0 3.7
1.7 1.5 3.1

-3.7

-24.4
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: WSA

21 April 2014 5
Tata Steel

India is likely to turn net India: net steel exports (mt)


exporter of steel in FY15 3.5
and FY16 on improving 2.9 2.4 2.0
western markets 1.5 1.4 1.4 1.0
0.5 0.3 0.0

-1.4
-2.0
-3.0 -2.8 -2.7
-4.1
FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15E

FY16E
Source: MOSL, JPC

India has already tasted a India: monthly net steel exports (kt)
net exports situation during 300
September 2013-January
2014, which helped to 75
improve pricing power
-150

-375

-600
Jul-12
Aug-12

Jul-13
Aug-13
Oct-12

Oct-13
Apr-12
May-12

Apr-13
May-13
Nov-12

Nov-13
Sep-12

Feb-13

Sep-13

Feb-14
Jan-13

Jan-14
Mar-13
Jun-12

Dec-12

Jun-13

Dec-13
Source: JPC

Iron ore prices have Iron ore prices: 62% grade, cfr China, USD/t
bounced back from 200
bottom…
170

140

110

80
Jul-10

Jul-11

Jul-12

Jul-13
Oct-10

Oct-11

Oct-12

Oct-13
Apr-10

Apr-11

Apr-12

Apr-13

Apr-14
Jan-10

Jan-11

Jan-12

Jan-13

Jan-14

Source: Bloomberg

…High iron ore inventories Iron ore inventories (mt) in Chinese ports
at ports remains a risk to 108
iron ore prices
96

84

72

60
Sep-12

Feb-13

Sep-13

Feb-14
Dec-12

Dec-13
Jul-12

Jul-13
Oct-12

Oct-13
May-12

Apr-13

May-13

Apr-14

Source: Bloomberg

21 April 2014 6
Tata Steel

High level of consolidation Share of key suppliers in seaborne iron ore trade
in seaborne iron ore trade
and high cost Chinese mines Vale
will limit the downside risk Others
24%
25%
on prices

FMG
10%
Rio
23%
BHP
18%

Source: BREE, MOSL

With acceleration in volume Tata Steel India: volumes and margins


growth and stable outlook EBITDA per ton (USD) Sales (m tons)
400
12.4 1 3 .0

for margins, we expect re- 1 2 .5

1 2 .0
384

rating of Indian business 350

363 10.9 1 1 .5

1 1 .0

347
9.4
1 0 .5
329

300
1 0 .0

8.9 9 .5

8.5
295

9 .0
250

7.5
8 .5

6.6
8 .0

241

240

240

240
6.4 7 .5

227
200

6.2
263
7 .0

6 .5

150

4.8 5.2 6 .0

5 .5

5 .0

100 4 .5

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E FY18E

Source: MOSL

21 April 2014 7
Tata Steel

Tata Steel Europe, overseas subsidiaries to stop leaking


Tata Steel Europe and other overseas subsidiaries (TSE&OS) have been a source of
free cash flow drain post the global financial crisis of 2008. Declining shipments due
to sharp reduction in demand drove up specific fixed cost at TSE and shrunk
margins. Shrinking margins and increased capex intensity (due to ageing equipments
of TSE) and investment in mining projects had put significant strain on the balance
sheet. We believe that TSE is likely to benefit from a cyclical upturn in demand,
focus on reducing cost, restructuring and stable capex intensity. We reiterate that
TSE has huge potential of improving its cost structure as nearly 1/3rd of its total
human resources are engaged in distribution and building business, which is
exceptionally high from industry standards. We note that TSE is gradually optimizing
its costs structure and service centers. We expect TSE&OS to stop being a drag on
free cash flows (operating cash flow – capex) of TATA and possibly generate some
free cash flows in FY16. Since TSE has thin margins and relatively high sustenance
capex requirements, we believe that EBIT is a better measure of cash flow
generation capacity rather than EBITDA for such assets (TSE always guided that
sustenance capex will equal the depreciation amount). Thus, we prefer to value
TSE&OS at EV/EBIT (rather than EV/EBITDA) of 7x, which amounts to pre-tax cash
flow yield of 14.3%. Given high volatility in cash flows, returns expectations too are
high.

TSE&OS are likely to stop TSE&OS: Cash flows (USD m)


leaking cash flows CF. Opr. Free Cash Flow (CF. Opr. - Capex)
1,793 1,771

856 1,012
543 443 414 411
313 215 212
56

-274 -152
-456 -389
-906
-1,358

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Source: MOSL

Although steel prices are HRC prices (EURO/T)


still trending down in North Europe HRC South Europe HRC
Europe… 570

525

480

435

390
Feb-13

Feb-14
Jun-12

Dec-12

Jun-13

Dec-13
Aug-12

Aug-13
Oct-12

Oct-13
Apr-12

Apr-13

Apr-14

Source: Bloomberg

21 April 2014 8
Tata Steel

…spreads are healthy due Spreads in USD/t: (HRC – 1.6x iron ore cfr China – 0.7x coking coal price FOB Australia)
to sharper decline in input
South Europe China
costs 400

345

290

235

180

Aug-10

Aug-11

Aug-12

Aug-13
Apr-10

Apr-11

Apr-12

Apr-13

Apr-14
Dec-10

Dec-11

Dec-12

Dec-13
Source: Bloomberg, MOSL

European steel EU(28): Demand growth (%)


consumption is 30% below 23.6
the peak of 2007. Yet the
11.4
outlook is improving with a 6.8 5.9 3.1 3.0
growth forecast of 3.1% in
2014 and 3% in 2015 -0.2
-8.2 -9.5

-35.7
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: WSA

With Europe hitting the TSE&OS: EBITDA/T (USD)


bottom, we expect margins
98
to improve 84

58
51 52
38 37

10 11
-11

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E

Source: MOSL, Company

21 April 2014 9
Tata Steel

Upgrade to Buy
Net debt to EBITDA ratio to decline

We believe the consolidated EBITDA for TATA will post a CAGR of 13% over FY14-
16E to INR209b driven by volume growth in Indian business and gradual recovery in
TSE&OS’ margins. We have revised EBITDA estimates by 7.4% and 8.8% for FY15E
and FY16E respectively on improved margins for Indian business as discussed earlier.

TATA will surpass previous EBITDA (INR b)


peak EBITDA in FY15E, with Indian Business TSE&OS
70% share coming from less
volatile Indian business 66
57
98 90 46 40
9 12

123 135 143


91 90 114 115 111
82

-9

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Source: MOSL

TATA has been working continuously to unlock value by selling assets that have not
been generating cash flows. Recently, Borivali land (Mumbai) was sold for INR11.5b
and Tata Steel International (Australasia), New Zealand was sold for INR1.4b. INR13b
of cash has been generated in FY15 without loss of material EBITDA. There are many
such assets -- investments in Dhamra Port, Tata Motors, Titan etc which can fetch
~INR100b or more if management so decides. We are valuing these assets at
INR75/share after factoring 20% discount to value of listed stock only. Improved
operating cash flows, no further step-up in capex and recent sale of assets will
deleverage the balance sheet. We expect net debt/EBITDA ratio to gradually decline
to 3.4x by end-FY16. As the benefits of KPO start kicking in during FY17, the gearing
will decline faster.

Tata Steel is expected to Net debt and EBITDA (INR b)


continue investing in Indian Net DEBT EBITDA Net debt/EBITDA (x)
greenfield projects. Net
debt has peaked. Net 5.8
4.9 4.7
debt/EBITDA will improve 4.2
3.7
3.1 3.4
2.7 3.0
1.9

0.5 0.4
140

494
180

538
181

463

494
160

525
124

601
123

763
163

713
192

707
209
28
62

26
63

74

80

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Source: MOSL

21 April 2014 10
Tata Steel

We are upgrading the target price to INR531 (earlier INR268) on improved margin
and higher target multiple of 6.5x (v/s 5.5x) for TSI. The sensitivity to equity value is
high on account of high level of leverage. Further, we upgrade the rating to Buy as
we believe there is no further stretch on balance sheet, while cash flows will keep
improving on acceleration in volume growth in high margin Indian business. The
revised target price of INR531 has an upside of 30% at CMP.

Tata Steel: SOTP valuation


Y/E March 2011 2012 2013 2014E 2015E 2016E
India
EBITDA/t raised by USD23
EBITDA per ton (USD) 363 347 263 227 241 240
and USD27 for FY15E and
FY16E respectively Sales (m tons) 6.4 6.6 7.5 8.5 8.9 9.4
EBITDA-India 114,329 113,937 113,232 123,473 135,006 142,827
Target multiple raised from Target EBITDA multiple 6.5 6.5 5.5 5.5 6.5 6.0
5.5x to 6.5x EV (India) - (a) 743,136 740,592 622,778 679,100 877,541 856,961
INR/share 765 762 641 699 903 882
TSE and other subs.
EBITDA per ton (USD) 51 10 11 37 52 58
Depreciation per ton (USD) 42 40 43 37 37 36
EBIT per ton (USD) 9 -29 -32 0 15 22
Sales (m tons) 17.1 17.6 16.7 17.8 18.3 18.8
EBIT 7,011 -24,852 -29,370 -40 16,198 25,144
Target EV/EBIT multiple 7.0 7.0 7.0 7.0 7.0 7.0
EV (TSE) - (b) 49,080 -173,963 -205,588 -280 113,385 176,009
INR/share 51 -179 -212 0 117 181
Target EV (c=a+b) 792,216 566,629 417,190 678,820 990,926 1,032,970
Net Debt (d) 494,001 525,413 601,496 716,416 712,543 707,436

Net debt cut by INR29-30b INR/share 509 541 619 738 734 728
D/E x (adj for goodwill) 2.4 2.1 2.8 3.1 2.5 2.1
CWIP (e) 246,544 298,543
INR/share 254 307
(d1) Discount (%) 33 33
Investments (f) 90,889 90,889
Investment value revised by INR/share 94 94
INR25b (d2) Discount (%) 20 20
TP (c-d+e*(1-d1)+f*(1-d2)) 516,278 598,269
Target Price (INR /share) 531 616

Risk factors
 Sharper decline in international iron ore prices -- below USD100/t cfr China
basis.
 European steel demand growth falters.
 Allocation of capital in investments with higher than 5-6x EV/EBITDA.
 Investment in capital intensive low grade iron ore project in Canada.

21 April 2014 11
Tata Steel

Financials and valuation


Income statement (INR Billion)
Y/E March 2011 2012 2013 2014E 2015E 2016E
Net Sales 1,187.5 1,329.0 1,347.1 1,485.8 1,525.6 1,560.7
Change (%) 16.0 11.9 1.4 10.3 2.7 2.3
EBITDA 160.0 124.2 123.2 163.0 191.7 208.6
EBITDA Margin (%) 13.5 9.3 9.1 11.0 12.6 13.4
Depreciation 44.1 45.2 55.8 58.8 59.4 60.3
EBIT 115.8 79.0 67.5 104.2 132.3 148.3
Interest 27.7 42.5 39.7 42.7 44.3 45.0
Other Income 2.8 15.7 4.8 3.5 3.7 4.0
Extraordinary items 30.1 33.6 -73.9 0.0 0.0 0.0
PBT 121.0 85.8 -41.3 64.9 91.8 107.3
Tax 32.5 36.4 32.3 27.5 36.0 38.4
Tax Rate (%) 26.8 42.4 -78.1 42.3 39.3 35.8
Reported PAT 88.6 49.5 -73.6 37.5 55.7 68.8
Adjusted PAT 58.5 15.9 0.3 37.5 55.7 68.9
Change (%) -808.1 -72.9 -98.3 13,536.1 48.7 23.6
Min. Int. & Assoc. Share 1.3 4.4 3.0 -0.6 -1.4 -1.6
Adj Cons PAT 59.7 18.1 1.5 35.0 52.5 65.5

Balance sheet (INR Billion)


Y/E March 2011 2012 2013 2014E 2015E 2016E
Share Capital 9.6 9.7 9.7 9.7 9.7 9.7
Reserves 346.2 416.6 332.0 351.5 409.1 465.5
Net Worth 355.8 426.3 341.7 361.2 418.8 475.2
Debt 634.2 647.4 707.7 777.0 798.1 819.1
Deferred Tax 20.1 24.4 31.2 27.7 40.8 54.7
Total Capital Employed 1,019.0 1,109.1 1,097.3 1,182.5 1,274.1 1,365.4
Gross Fixed Assets 981.0 1,133.0 1,352.6 1,473.3 1,542.2 1,611.0
Less: Acc Depreciation 615.3 712.0 798.4 857.2 916.6 977.0
Net Fixed Assets 365.7 421.0 554.3 616.1 625.5 634.1
Capital WIP 135.5 200.3 137.9 194.5 246.5 298.5
Investments 46.9 26.2 25.0 25.0 25.0 25.0
Current Assets 652.1 609.7 580.3 561.0 596.8 632.6
Inventory 240.6 256.0 240.9 244.2 250.8 256.6
Debtors 148.1 148.8 139.9 162.8 167.2 171.0
Cash & Bank 140.2 122.0 106.2 60.6 85.5 111.7
Loans & Adv, Others 123.2 82.9 93.3 93.3 93.3 93.3
Curr Liabs & Provns 334.1 321.7 330.8 344.7 350.4 355.4
Curr. Liabilities 171.2 183.2 197.8 211.7 217.4 222.3
Provisions 163.0 138.5 133.0 133.0 133.0 133.0
Net Current Assets 318.0 288.0 249.5 216.3 246.4 277.2
Total Assets 1,019.0 1,109.1 1,097.3 1,182.5 1,274.1 1,365.4
E: MOSL Estimates

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Tata Steel

Financials and valuation


Ratios
Y/E March 2011 2012 2013 2014E 2015E 2016E
Basic (INR)
EPS 62.3 18.6 1.6 36.1 54.1 67.4
Cash EPS 139.6 99.7 -17.1 96.6 115.3 129.5
Book Value 211.4 260.2 217.3 237.3 296.6 354.7
DPS 12.0 12.0 8.0 8.0 8.0 9.0
Payout (incl. Div. Tax.) 22.4 84.9 4,916.2 36.1 25.7 21.3
Valuation(x)
P/E 6.6 22.3 263.7 11.5 7.7 6.1
Cash P/E 3.0 4.2 -24.2 4.3 3.6 3.2
Price / Book Value 2.0 1.6 1.9 1.7 1.4 1.2
EV/Sales 0.8 0.7 0.7 0.8 0.7 0.7
EV/EBITDA 5.6 7.5 8.1 6.9 5.8 5.3
Dividend Yield (%) 2.9 2.9 1.9 1.9 1.9 2.2
Profitability Ratios (%)
RoE 17.6 17.1 4.2 8.3 16.9 18.7
RoCE 12.8 7.4 6.1 9.1 10.8 11.2
Turnover Ratios (%)
Asset Turnover (x) 1.2 1.2 1.2 1.3 1.2 1.1
Debtors (No. of Days) 45.5 40.9 37.9 40.0 40.0 40.0
Inventory (No. of Days) 73.9 70.3 65.3 60.0 60.0 60.0
Creditors (No. of Days) 60.8 55.5 59.0 58.4 59.5 60.0
Leverage Ratios (%)
Net Debt/Equity (x) 2.4 2.1 2.8 3.1 2.5 2.1

Cash flow statement (INR Billion)


Y/E March 2011 2012 2013 2014E 2015E 2016E
OP/(Loss) before Tax 121.0 85.8 -41.3 64.9 91.8 107.3
Depreciation 44.1 45.2 55.8 58.8 59.4 60.3
Others -2.8 -15.7 -4.8 -3.5 -3.7 -4.0
Interest 27.7 42.5 39.7 42.7 44.3 45.0
Direct Taxes Paid -32.4 -36.5 -25.7 -30.9 -22.9 -24.6
(Inc)/Dec in Wkg Cap -71.7 11.6 31.3 -12.3 -5.2 -4.6
CF from Op. Activity 64.6 112.8 133.2 119.7 163.6 179.4
(Inc)/Dec in FA & CWIP -104.2 -121.4 -154.7 -145.0 -120.0 -120.0
(Pur)/Sale of Invt 17.5 78.5 29.5 0.0 13.0 0.0
Others 49.4 -5.1 -3.3 3.5 3.7 4.0
CF from Inv. Activity -37.3 -48.0 -128.6 -141.5 -103.3 -116.0
Inc/(Dec) in Net Worth 45.6 6.0 2.6 0.0 0.0 0.0
Inc / (Dec) in Debt 37.9 -39.8 25.2 30.0 20.0 20.0
Interest Paid -31.4 -37.6 -34.7 -44.5 -46.1 -46.8
Divd Paid (incl Tax) -7.1 -11.6 -13.6 -9.3 -9.3 -10.5
CF from Fin. Activity 44.9 -83.0 -20.4 -23.8 -35.4 -37.3
Inc/(Dec) in Cash 72.3 -18.2 -15.8 -45.6 24.9 26.2
Add: Opening Balance 67.9 140.2 122.0 106.2 60.6 85.5
Closing Balance 140.2 122.0 106.2 60.6 85.5 111.7
E: MOSL Estimates

21 April 2014 13
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21 April 2014 14