TATA STEEL

Imtiyaz Khanda Neelam Gade Ganesh Jaiswal Mohammad Anwar Shraddha Sangle

Established in 1907 by Jamshetji N Tata in Jamshedpur.

Formerly known as Tata Iron and Steel Company Limited (TISCO). 28.1 million tonnes per annum of crude steel production capacity. With Corus acquisition, TSL is worlds 10th largest steel producer. Ranked Best Steel Maker by World Steel Dynamics in 2006, 2005 and 2001. It is Asias First and Indias largest steel company in the private Sector. Headquartered in Jamshedpur, Jharkhand and registered office in Mumbai.

Tata Steel Division

Hot Metal

Crude Steel

Saleable Steel

 ArcelorMittal

Essar

Steel N.V.Daido Steel Co., Ltd. Steel Authority of India Ltd. Jsw Steel Visa Steel, etc.

Substitute Products

Suppliers

Rivalry among Competing sellers

Buyers

Potential new Entrants

Private & Confidential Kaushal Mehta

What Exactly FDI is? Foreign direct investment (FDI) is direct investment into production in a country by a company located in another country, either by buying a company in the country or by expanding operations of an existing business in the country. Foreign direct investment is done for many reasons including to take advantage of cheaper wages in the country, special investment privileges such as tax exemptions offered by the country as an incentive to gain tariff-free access to the markets of the country or the region. FDI for Tata Steel : A top Obama Administration official on Thursday praised Tata Steel as a shining example of foreign direct investment (FDI) in the United States that has created jobs in the economy. The significance of FDI, citing the Tata Steel as an example of foreign companies whose investments in the US strengthen economic growth and job creation

Financial Performance Performance Indicator Shipments (kt) Grouping Consolidated > Tata Steel India > Tata Steel Europe > NatSteel > Tata Steel Thailand Turnover (US$ m) Consolidated > Tata Steel India FY08 31,678 4,782 22,800 2,493 1,433 29,502 4,417 FY09 28,542 5,232 19,691 2,369 1,112 33,045 5,454 FY10 23,607 6,169 14,422 1,779 1,198 22,966 5,612 FY11 23,540 6,416 14,873 1,803 1,290 26,635 6,593

> Tata Steel Europe

> NatSteel > Tata Steel Thailand EBITDA (US$ m) Consolidated > Tata Steel India > Tata Steel Europe > NatSteel > Tata Steel Thailand Profit After Tax (US$ m) Basic EPS (US$) Consolidated Consolidated

22,478
1,718 914 4,101 1,852 2,039 51 113 2770 176.81

24,575
3,021 889 4,148 2,118 1,997 63 33 1110 66.07

14,768
1,403 708 2,095 2,199 -303 56 31 -451 -24.92

17,044
1,663 877 4,398 2,742 943 68 12 2015 99.03

The conversion rate used is US$ 1= 44.585 INR

Consolidated Ratios

FY08 EBITDA/Turnover PBT/Turnover Return on Avg. Capital Employed Return on Avg. Net Worth Asset Turnover Inventory Turnover (in days) Debtors Turnover (in days) Net Debt to Equity Current Ratio Interest Cover ratio 14% 8% 21% 51% 108% 37 28 2 1.9 3.5

FY09 13% 7% 16% 16% 129% 55 39 1.7 1.8 4.3

FY10 9% 2% 6% -8% 98% 72 44 1.8 1.5 1.6

FY11 14% 8% 14% 30% 93% 66 40 1.6 1.8 4.6

Dividend Payout ratio

P/E Ratio (year end price)

11%
3.9

30%
3.1

n.m.
n.m.

15%
6.3

Tata steel has presence in 50 countries with manufacturing operations in 26 countries. It has manufacturing operations in these locations

Asia : India, Malaysia, Vietnam, Thailand, Oman. (All through acquisition route) Africa : Ivory Coast, Mozambique, South Africa. Australia : Central Queenland North America : Canada Europe : United Kingdom, The Netherlands, France

In india Tata steel in present in Jharkhand, Jhamshedpur, Chattisgarh,Orissa & Tamil nadu

 Emphasis
Emphasis Ensuring

on costs
on operational efficiency

cheaper resources

Enhancing

revenue through better premium in products

 Formula

NPV = (CF/1+r) + (CF2/1+r^2).. + (TCF/r-g * 1/1+r^n-1) where NPV Net present value CF Cash flow. R Discount rate. G Growth rate assumption in perpetuity. TCF Terminal year cash flow. N - No. of periods in the valuation model including the terminal year.

We have assumed the following -- Growth in cash flows of 8% (years 1- 5) and 5% (years 6-10). Average cost of capital 15 % . Expected growth rate after 10 yrs & till perpetuity 1%.(limited iron ore & coking coal can be mined) Based on these numbers and after reducing the net debt (debt minus cash), the present or discounted value of future cash flows for Tata Steel is coming at Rs 560 per share, which is also the stocks intrinsic value using this method.

 Dividends

are the cash flows that are returned to the shareholders. for valuing a company with a constantly growing dividend is --

Formula

We have assumed the following Discount rate of 15%. Dividend growth rate of 12%. Latest dividend of Rs 12 (2010 -2011)
Based

on the above assumptions the intrinsic value of Tata Steel based on DDM model is Rs 400/Rs 12/ 15% - 12% = Rs 400/-

 Intrinsic

Value as per NPV based on 10yr DCF Rs 560 / Intrinsic Value as per DDM model Rs 400/So which model should we consider ??? For simplicity we use the avg. of both the models & apply margin of safety.

 Average

of both the intrinsic value comes to Rs 480/- ( 560 + 400 /2). assume 25% margin of safety, which comes to (480 * 25/100 = 120).

We

So

Fair value after MOS =RS 360/(480 - 120).

 Fair

value after margin of safety Rs 360/ Current market price Rs 410/- (8th june 2012). Market price > Fair Value, so value investor may want to avoid the stock at CMP.