TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Strategic Analysis and Recommendation

for

Under the aegis of

Indian Institute of Management

Bangalore
PGSEM 2012

Submitted to Prof. Deepak.K.Sinha

Submitted by

SANDIP JALAN (1212047)

SANTHOSH EDUKULLA (1212048)
SHARMASH DUDEKULA (1212051)
SUPRIYA THENGDI (1212062)

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Contents
Introduction.................................................................................................................................................3
Key problems and strategic issues for Tata Steel........................................................................................3
Fall in Demand.....................................................................................................................................3
Limited supply.....................................................................................................................................4
Increasing costs of inputs....................................................................................................................4
Industry Attractiveness for Tata Steel.........................................................................................................4
Entry barriers: High attractiveness......................................................................................................4
Bargaining power of suppliers: High attractiveness.............................................................................5
Threat of substitutes: Low attractiveness............................................................................................6
Bargaining power of Consumers: Mixed attractiveness.......................................................................6
Rivalry among competitors: High attractiveness.................................................................................6
Competition Analysis...........................................................................................................................7
Key Recommendations................................................................................................................................7
We recommend: Cost optimization.....................................................................................................7
We recommend: Production changes, innovation and growth...........................................................8
Financials...................................................................................................................................................10
ROE: Decreasing Trend......................................................................................................................10
Financial Projections..........................................................................................................................10
Market Share & Competitors.............................................................................................................11
Appendix 1: Total Revenue and Profit growth for Tata Steel....................................................................12
Appendix 2: Porter’s 5 forces model for Tata Steel...................................................................................12
Appendix 3: Ke ratio calculation.................................................................................................................13
Appendix 4: Consolidated Financial Ratios................................................................................................13

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Introduction
Established in 1907, Tata Steel is among the top ten global steel companies with an annual crude steel
capacity of over 28 million tonnes per annum (mtpa). It is now one of the world's most geographically-
diversified steel producers, with operations in 26 countries and a commercial presence in over 50
countries.  The Tata Steel Group, with a turnover of US$ 22.8 billion in FY '10, has over 80,000
employees across five continents and is a Fortune 500 company.

 Tata Steel’s vision is to be the world’s steel industry benchmark through the excellence of its people, its
innovative approach and overall conduct. Underpinning this vision is a performance culture committed to
aspiration targets, safety and social responsibility, continuous improvement, openness and transparency.

 Tata Steel’s larger production facilities include those in India, the UK, the Netherlands, Thailand,
Singapore, China and Australia.  Operating companies within the Group include Tata Steel Limited
(India), Tata Steel Europe Limited (formerly Corus), NatSteel, and Tata Steel Thailand (formerly
Millennium Steel).

For our analysis we consider Tata Steel Limited (India). All financials are reported for Tata Steel Limited
independent of the financials of the Tata Steel group and we refer to the same for our analysis. Also the
recommendations are to be applied to this subsidiary.

Key problems and strategic issues for Tata Steel

Steel is a highly commoditized industry with challenges unique to its demand and supply structure. Steel
industry depends upon supplies that are natural and limited. The demand is cyclical and depends heavily
on the economic situation of the consumers. Most applications of steel can be deferred in time for the
short run. Due to fixed availability of supply and varying nature of demand the problems faced by it
continue to change over the years, however we have highlighted the current list of problems. The current
challenges faced by Tata steel in brief are:

Fall in Demand
Steel is used in various industries like construction, infrastructure, automotive, aviation, household
articles, etc. Demand for Steel has fallen in recent years due to the availability of substitutes like plastic
and aluminum. Pipes, furniture parts, automotive parts, etc fall into this category. Financial crisis in

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Eurozone, China has impacted world growth hence the demand for steel has fallen. World GDP growth is
also moderate.

Limited supply
Major raw materials for Steel are iron ore and coal. Since quality of these heavily affects the quality and
strength of steel, sources cannot be substitutes easily. Also they are natural hence limited in supply. There
is fierce competition in the industry to acquire exclusive rights to the best quality of coal and iron ore.
The coking coal supplies in India are not of high quality hence Tata steel sources most of its coal from
Australia. Rising costs of freight also is affecting Tata Steel.

Increasing costs of inputs

Freight and handling charges increased for Tata steel in 2011 by 11% from 1541 Crore rupees. Power
charges went up by 28%, royalty for coal and iron ore in India increased by 48%. Overall there was
16.7% increase for FY 2011-12 (Total increase was 1069 crs Rs. for a PAT of 6696 Crs. Rs.) Due to these
factors the Return on Equity for Tata Steel for 2011-2012 was 13% against the market returns of 21.82%.
See Appendix 1 for the growth trend, Appendix 2 for cost of capital calculations.

Industry Attractiveness for Tata Steel

Entry barriers: High attractiveness
Capital Requirement: Steel industry is a capital intensive business. Tata Steel has a lineup of Greenfield
projects which it plans to establish not only in domestic markets (Jharkhand, Orissa & Chhattisgarh) but
also internationally (Bangladesh, Iran & Vietnam). Besides, it has already completed its expansion
capacity of its existing plant from 5 mtpa to 6.8 mtpa at Jamshedpur with an investment of Rs. 5,000
crore, while it is in the process of expanding the capacity from 6.8 mtpa to 10 mtpa with an estimated
investment of Rs 15,000 crore. It would prove to be very difficult for any new entrant to come up with
such huge investment outlays.

Economies of scale: As far as the sector forces go, scale of operation does matter. Tata Steel being an
integrated steel company has its own mines for key raw materials such as iron ore and coal and this
protects them for the potential threat for new entrants to a significant extent. Tata Steel owns raw material
assets such as coal and limestone mines through joint ventures or completely, with the assets spread
across countries such as Australia, Oman and Mozambique.

Government Policy: The government has a favorable policy for steel manufacturers. However, there are
certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore, the
regulatory clearances and other issues are some of the major problems for the new entrants. Tata Steel

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

being a century old company under the flagship Tata Sons which is known for its Corporate Social
Responsibility already enjoys a respectable position in front of the Indian Government. The Jharkhand
government on May, 24th 2009, has granted a prospecting licence (PL) to Tata Steel for the Ankua iron
ore mines.

Product differentiation: Steel has very low barriers in terms of product differentiation as it doesn’t fall
into the luxury or specialty goods and thus does not have any substantial price difference. However, Tata
Steel still enjoys a premium for their products because of its quality and its brand value created more than
100 years back. Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled
Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico
(hand tools and implements), Tata Wiron (galvanized wire products), Tata Pipes (pipes for
construction)and Tata Structure (contemporary construction material).

Currently two Global Steel majors namely Arcelor- Mittal and POSCO, are posed to be the biggest threat
as they plan to enter the Indian Steel Industry very soon.

Bargaining power of suppliers: High attractiveness

Since domestic raw material sources are insufficient to supply the Indian steel industry, a considerable
amount of raw materials are imported. For example, iron ore deposits are finite and there are problems in
mining sufficient amounts of it. India’s hard coal deposits are of low quality. India is the world’s sixth
biggest coal importer. In order to safeguard itself from the high bargaining power of the buyers, Tata
Steel has forayed much earlier into the strategy of ‘Backward Integration’. Ownership of raw materials
and a continuous improvement in production has been the key to Tata Steel’s profitability. Tata Steel and
state-owned SAIL have largely been able to withstand raw material price fluctuations due to captive iron
ore mines. Tata Steel is also one of the least cost markers of steel in the world.

The company is dependent on imports for a major portion of its raw material iron ore and coking coal
requirements. Tata Steel is self-sufficient to the extent of 25 per cent for iron ore needs. With supplies
coming in from its mines at New Millennium Corporation in Canada and potentially from the Ivory Coast
over a longer term, its iron ore security would gradually increase to around 62 per cent by 2015. Overall,
raw material security would reach 50 per cent by 2015 and go up to about 60 per cent by 2018. It is also
evaluating several other mineral projects in Brazil and Australia.

Progressing towards the goal of achieving logistics control, Tata NYK Shipping Pte Ltd, the Singapore-
based joint venture (50:50) between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK Line) was
floated to handle ocean transportation of bulk cargoes such as coal, iron ore, limestone as well as finished
steel, both imports and exports, for Tata Steel and also for other Tata Group companies.

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

To achieve coal security by way of imports, the company has formed a joint venture with an Australian
company for producing coal in Mozambique, acquired strategic interest of five per cent with 20% of take
rights in the coal mining project in Australia in partnership with several other foreign companies and
formed a 50:50 joint venture with Steel Authority of India Ltd (SAIL). For limestone, Tata Steel has
entered into a joint venture with the Al Bahja Group of Oman for a 70% stake. The joint venture will
undertake mining of limestone in the Uyun region in Salalah province of Oman.

By undertaking such long term strategies to increase its raw material security, Tata Steel is making it
difficult for the suppliers of raw material to bargain exorbitant prices.

Threat of substitutes: Low attractiveness

Plastics and composites pose a threat to Indian steel in one of its biggest markets automotive manufacture.
For the automobile industry, the other material at present with the potential to upstage steel is aluminum.
Stainless producers themselves are offering their customers a range of alternatives in an effort to prevent
business being lost to non-ferrous or carbon steel materials. Such options include lower-nickel duplex
grades and ferritic types. In the meantime, nickel’s fluctuations will continue to create problems for the
stainless industry worldwide.

However, at present in India the high cost of electricity for extraction and purification of aluminum
weighs against viable use of aluminum for the automobile industry. Steel has already been replaced in
some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC
pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more
prevalent in the manufacture of automobiles and consumer durables.

Bargaining power of Consumers: Mixed attractiveness

Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables
and power generation enjoy high bargaining power and get favorable deals. However, small and retail
consumers who are scattered and consume a significant part do not enjoy these benefits.

Rivalry among competitors: High attractiveness

The steel industry is truly global in terms of competition with large producing countries like China
significantly influencing global prices through aggressive exports. Steel, being a commodity it is,
branding is not common and there is little differentiation between competing products. The 4 major
domestic rivals are SAIL, JSW, ISPAT & ESSAR STEEL. Rest is all small mills which together accounts
for 30% of the total market share.

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Competition Analysis
In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in
relation to the industry as a whole. This may also assist in determining the market form of the industry.
One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market
share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio
is the percentage of market output generated by the N largest firms in the industry. The 4 firm
concentration ratio of the Iron and Steel Industry is 71%. This implies that there is oligopoly in the
industry as it is dominated my few major players. Major percentage of market output is generated by the 4
largest firms in the industry.

Key Recommendations
Tata Steel is currently stuck in the middle from the business strategy point of view. We recommend Tata
steel to increase its market share and reduce costs. Total crude steel production in India for 2010-11 was
around 69 million tonnes. TATA Steel Share is 11%, SAIL 32% and JSW 19%. At a broad level, Tata
Steel should focus on optimizing the utilization of its current production capacity (reduce downtime,
wastages, etc), boost quality perception to lure customers away from competitors, reduce costs to increase
margins and invest in expansion plans to keep up with the growth rate of the Indian economy.

We recommend: Cost optimization

Operating Costs in any steel manufacturing concern can be broadly divided in these categories, to reduce
costs, Tata steel should focus on each of these areas and look to reduce or optimize costs.

1. Raw material, stores and supplies (32% of total expenses for Tata steel in 2011-12, 28%
increase from 2010-11)
a. Backward integration: Tata steel relies heavily on imports of raw materials which added
to increase in costs after the rupee depreciation. Tata Steel is self-sufficient to the extent
of 25 per cent for iron ore needs. We recommend the strategy of continued backward
integration to reduce dependence on external suppliers to an even greater extent. Tata
steel should continue to focus on captive mines which would guarantee a continuous
supply of iron ore and coke at stable costs.
b. Price fluctuation and interest costs: To safe guard against price volatility due to rupee
fluctuation and reduce forex losses Tata steel should negotiate long term contracts with
price protection, reduction in inventory levels would also protect against price changes
and provide benefits of spot price reduction in absence of long term price contracts.

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

c. Wastage: Company can reduce raw material and wastage costs by employing efficient
recycling measures and adopting latest innovations in technology and processes.
2. Employee and labor costs (7% increase from 2010-11)
Reduce downtime: Tata is known for its employee friendly policies across the world. This
image helps Tata group in negotiating contracts with government and win special deals
with regard to price subsidies. The wages costs cannot be reduced unless the company
decides to cut down its workforce. We recommend optimization of the employee and
labor output without actual reduction in labor force. The company must invest in safety
measures to reduce employee and labor downtime due to accidents or illness.
3. Freight and handling (11% increase from 2010-11)
Better deals: Freight and handling charges increased for Tata steel in 2011 by 11% from
1541 Crore rupees. Freight costs for steel makers vary according to proximity to sources
and existing contracts between the steel makers and the miners. The freight costs for Tata
steel can be reduced by having exclusive deals with mines that provide for raw materials.
Also Tata steel should look at mines for iron ore and coal closer to India and reduce
dependence on mines that are across the globe. Backward integration strategy would also
help to reduce these costs.
4. Machinery maintenance and repairs
Tata group can look at in house innovations to improve process efficiency and reduce
production costs. The company should set up a dedicated work force comprising of
employees from various expertise groups to relook at the processing techniques, waste
management, emissions and suggest improvements and cost saving measures. The
employees that closely work with these operations are best suits to optimize them and
increase cost savings.
5. Power, government duties including royalty ,etc
Leverage reputation via CSR initiatives to gain better deals from government, ask for
subsidies, waivers, etc.

We recommend: Production changes, innovation and growth

 Tata Steel is a 105 year old company with large expenses on repairs and maintenance (9%
increase from 2010-11). It should build a reputation of having the latest technological updates in
production techniques, machinery and personnel.
 All the major domestic competitors like SAIL, ESSAR, JSW, JSPL have announced massive
expansion plans recently: SAIL has announced that it will achieve production capacity of 40
Million Tons by 2020. JSW plans to expand its production to 32 Million Tons by 2020. Other

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players such as JSPL, ESSAR have similar production expansion plans which will contribute in
overall achievement of 200 Million Tons steel production by the year 2020. Tata Steel should
continue its growth plans for the Jamshedpur and Orissa plants to maintain and grow its market
share.
 Company should try to see that so much of production doesn’t create over supply of steel in the
market as it will drive down the prices, rather it can aim at making Specialty Steels products like
stainless steels, Tool Steels, Die Steels, Valve Steels etc.
 TATA Steel should focus on R&D and increase its expenditure on R&D to be able to assimilate
the technology faster. Resource utilization must be more effective to improve on the productivity.
It should invest in innovation to increase labor productivity from 100Tn/MY to 250Tn/MY.
 TATA Steel can look at exploring the rural markets where it can source replacing the
conventional agricultural tools with low cost steel products. TATA steel can introduce cost
effective fencing, housing products and other possible applications.
 Steel production processes are energy dependent and price movements in the energy market
would accordingly affect Tata Steel’s bottom line. Invest in energy conservation techniques like
boiler efficiency improvement, reduce CO2 emissions, install waste heat recovery mechanisms,
etc.
 Expand in the Avenues of Energy and Power Sector - Steel is the main material used in delivering
renewable energy. TATA Steel along with wind mill power generation companies can tie out
with Indian government on the wind power generation which benefits all three.
 Explore avenues in Infrastructure development
The major investments required in infrastructure are expected to be a significant driver of steel
consumption in the domestic market as infrastructure and construction combined account for 80%
of India’s steel consumption. TATA Steel should tie out with TRIL to invest in infrastructure
development activities.

Plan and implementation

Steel demand in India is mainly driven by the construction sector, which consumes about 60% of
the total production. The automobile sector consumes about 11%. Indian Government is investing
hugely on Infrastructure development projects like construction of national highways, flyovers
and metro rail in metropolitan and cosmopolitan cities. This is a biggest opportunity before
TATA Steel for increasing consumption of steel in almost all sectors in India. India’s per capita

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domestic appliances. Leading to a global weighted average of over 70%.
for construction, 85% for automotive, 90% for machinery and 50% for electrical and
and applications. By sector, global steel recovery rates for recycling are estimated at 85%
All steel created as long as 150 years ago can be recycled today and used in new products
Converting Scrap into Steel - Rely on scrap steel for production rather than iron ore 
exports.
Steel output. In case TATA steel can’t capture Indian market, it can focus more on
consumption will double in next 25 years. Tata Steel -India exports only 12% of their
Access the export market to improve its sales - It is estimated that world steel 
Contingency plans
Tie out with TRIL to invest in Infrastructure development to create demand for steel in
Infrastructure and construction sector. 2016
Innovate to create Specialty Steels products
Explore rural markets to source replacing conventional agricultural tools with low cost
steel products.
Along with Wind power generation companies tie out with Indian govt to generate wind 2015
power to secure power and increase production sales by catering steel supply to wind mill
machinery and equipment.
Expansion for current plants productive capacity.
Acquire and development of Mining projects for its raw material security for iron ore and 2014
coking coal.
Invest in R&D in improve production of superior quality of steel
Identify , upgrade and modernize old plants through brownfield projects.
Implement the best practices from Nippon and Posco to increase labor productivity from 2013
100Tn/MY to 250Tn/MY.
Innovate on production improvement methodologies like TPM and KM to increase labor
productivity and Steel quality
consumption of 150 kgs. There is long way ahead and to go for India.
consumption of steel is underrated and is about 42Kg per head against global average per capita
August 31, 2012 TATA Steel - Strategic Analysis and Recommendations
TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Financials
ROE: Decreasing Trend

The company’s ROE has fallen from 36% in FY 2005-06 to 13% in FY 2011-12. This is primarily due to
the substantial increase in interest costs and also a slight fall in sales turnover.
This is also because of the continuous increase of debt on books. The company’s debt has increased from
Rs.4225.61 Cr. in 2003 to Rs. 21353.20 Cr. right now (mainly due to Corus acquisition). It will take more
than 5 years to pay off its debt. The average ROE for the last 10 years is 30% approx. which is more than
the calculated Ke which is 21.82% (refer appendix). Hence, looking at the overall performance over a 10
year period, we can say that TATA Steel is a profitable company. It is the interest cost on its debt that is
eating up a huge chunk of its profits, especially on a consolidated basis.

Financial Projections
We suggest reducing costs and improving the ROS from the current 20% to 25% in 2016. Also, we
recommend continuing the same sales-to-asset & assets-to-equity rations at 0.43 & 1.49 respectively.
This will improve the ROE from the current 13% to 16.02% in 2016. The current sales growth rate is
around 15% in FY 2011-12. We recommend continuing with the same annual sales growth rate of 15%
for 2013 & 2014. In the year 2015 we target to grow at 20% considering the increase in production and
sales from the investments made in the next 2 years. Hence after, we forecast an annual growth of 15%
in 2016. To achieve this company has to grow its assets from Rs. 78317 Crs currently to Rs. 144023 crs by
2016. Company would need to get in some fresh investments which could be in the form of fresh equity
to achieve these targets.

Suggest ratios for next 4 years & forecasts for Sales, assets, investments and
resources with growth rate 15% for 2013, 15% for 2014, 20% for 2015, 15% for 2016
2013 2014 2015 2016
ROE, % 14.10% 14.74% 15.38% 16.02%
S/A 0.43 0.43 0.43 0.43
A/E 1.49 1.49 1.49 1.49
ROS, % 22% 23% 24% 25%
Sales 39,023.48 44,877.00 53,852.40 61,930.26
Total assets 90,752.28 104,365.12 125,238.14 144,023.86
Profit 8,585.17 10,321.71 12,924.58 15,482.57
Equity 60,907.57 70,043.70 84,052.44 96,660.31
Note: All amounts in Rs Crores.

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Market Share & Competitors

In India 70% of the Steel market is captured by the four major players SAIL, TATA Steel, JSW & VISA
Steel. TATA Steel has a market share of 11% in India. The table compares TATA steel with its competitor
on various parameters.

Parameters Tata Steel SAIL JSW VISA Steel

Production 7.4 13.5 8.4 3.5

Capacity
(mtpa)

Market Share 11% 32% 19% 8%

Year of 1907 1954 1984 1996

establishment

Products Construction Bars, Rods, pipes, rails, Hot Hot rolled sheets Alloy & steel metals
Hot rolled sheets rolled sheets & coils, & coils, Cold roll catering to
& coils, Cold roll Cold roll sheets & sheets & coils, automobile, railway,
sheets & coils, coils galvanized infrastructure,
wires and rods sheets & coils defense sector etc

Net Worth 46,944.63 37,069.47 17,225.27 353.29

(crores)

Revenue/ Rs 118.75 billion Rs 430.34 billion Rs 30 billion Rs 13.32 billion

Turnover

Global Operations in 24 Export to over 20 Acquisition of Presence in India,

Presence countries & countries, JV to steel mill in US, China, Australia,
commercial acquire coal mines tie up in Japan Indonesia, South
presence in over abroad,  expansion for high grade Africa & Singapore
50 countries plan with emphasis on automotive steel
state of the art
technologies

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Appendix 1: Total Revenue and Profit growth for Tata Steel

40000

35000 33933.46

29396.35
30000

24348.52 25021.98
25000

19652.53
20000 Profit After Tax
in Crore Rs 17458.39
Total Revenue
15135.41
15000

10000
6865.69 6696.42
4687.03 5201.74 5046.8
3506.38 4222.15
5000

0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

Appendix 2: Porter’s 5 forces model for Tata Steel

T hr ga
Bar
SCom
Mi
ea intof
in gsu bspowtite utreofs:
x edipetiti
Consum
uppl eres :rsvMi:eRiveda lredy : High
xMix

Capital intensive business

High cost of imports
Economies of scale benefit
Low quality of coke in India
large companies
Integration with Coal and Iron
Complex Gov regulations
ore mines provides some
Low product differentiation
supplies
Entry Barriers: High
Power costs, royalty charges
are high
Major consumersThreat
like of New Large global
Aluminum production
in India is costly automobiles, oilCompetition:
& gas, Low
players
Steel manufacturer shipping, consumer Steel is
provide alternatives to durables and power commoditized
Steel like generation enjoy high with little
Plastic as alternative in bargaining power branding
domestic use, Small Retail players have Top 4 players
automobiles no power at all control 71%
market share

Appendix 3: Ke ratio calculation

Beta (ß) 1.41 http://beta.bseindia.com/indices/betavalues.aspx

http://www.tradingeconomics.com/india/interest-rate

Rf 8.00 Avg return for government bonds over 10yrs

http://www.lifins.in/attachment/MutualFund_SensexPerformance.html

E(Rm) 17.8 Avg return on BSE for 10 yrs

For above data, Ke is 21.82

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 TATA Steel - Strategic Analysis and Recommendations August 31, 2012

http://en.wikipedia.org/wiki/Capital_Asset_Pricing_Model

Appendix 4: Consolidated Financial Ratios

Consolidated Financial Ratios
2011- 2010- 2009- 2006- 2002-
  12 11 10 2008-09 2007-08 07 2005-06 2004-05 2003-04 03
14.40 30.73
EBITDA/Turnover 10.18% % 9.12% 12.55% 13.90% % 32.23% 39.35% 31.19% 23.79%
25.09
PBT/Turnover 4.26% 8.35% 1.78% 7.43% 7.65% % 27.20% 34.08% 24.27% 14.10%
Return on Avg Capital 13.98 23.31
Employed 8.62% % 5.69% 15.57% 21.13% % 39.47% 48.31% 27.71% 16.12%
Return on Avg Net 29.88 34.19
Worth 13.14% % -8.01% 16.19% 51% % 43.57% 62.02% 45.96% 35.60%
93.04 128.56 108.27 76.65 120.89 107.44 100.15
Asset Turnover (S/A) 93.06% % 98.12% % % % % % % 79.18%
Inventory Turnover in
days 68 66 72 55 37 46 45 42 40 45
Debtors Turnover in days 41 40 44 39 28 21 23 24 30 47
Gross Block to net block 2.15 2.18 2.33 2.39 2.51 1.65 1.67 1.65 1.7 1.65
Net Debt to equity 1.16 1.55 1.77 1.65 1.99 0.84 0.06 0.22 0.42 1.14
Current ratio 1.68 1.77 1.46 1.78 1.87 2.45 1.35 1.11 1.07 1.39
Interest cover ratio 2.69 4.58 1.6 4.32 3.46 16.38 35.21 28.52 21.89 5.09
Networth per share 467.57 409.02 278.28 330.49 472.03 223.08 181.53 128.95 81.52 89.23
Earnings per share 54.28 99.03 -24.92 66.07 176.81 64.66 67.62 65.27 32.4 28
Dividend payout 25% 15% -45% 30% 11% 26% 22% 23% 23% 32%
P/E ratio 8.67 6.27 -25.36 3.12 3.92 6.95 7.93 6.14 11.84 4.78

  2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06

               
Net profit (PAT) 6696.42 6865.69 5046.8 5201.74 4687.03 4222.15 3506.38
33933.4 29396.3 25021.9 24348.5 19652.5 17458.3 15135.4
Sales 6 5 8 2 3 9 1
78317.0 75519.6 63365.2 57122.6 45328.0 23741.4 12271.4
Total assets 8 4 5 8 7 9 5
Shareholders' 52621.5 46945.2 36961.9 27306.3 14096.1
Equity 3 4 4 30176.5 8 6 9755.3
               
ROE, % 13.00% 15.00% 14.00% 17.00% 17.00% 30.00% 36.00%
ROS, % 20.00% 23.00% 20.00% 21.00% 24.00% 24.00% 23.00%
S/A 0.43 0.39 0.39 0.43 0.43 0.74 1.23

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A/E 1.49 1.61 1.71 1.89 1.66 1.68 1.26

Total ShareHolder Return:

Below are the Dividends, Share prices for TATA STEEL at the beginning and closing for the respective
years.

Dividend Price Price

YEAR D% s Beg End TSR
-
2012 120 12 440 366 0.51667
-
2011 120 12 608 324 2.26667
2010 80 8 596 648 0.75
2009 160 16 153 578 2.75625
2008 160 16 596 180 -2.5
2.60967
2007 155 15.5 367 756 7
0.63846
2006 130 13 311 381 2
0.14615
2005 130 13 287 293 4
2004 100 10 292 289 0.07
2003 80 8 104 318 2.775

According to which TSR stands value stands at 117%.

 
=(((366+123.5)/104)^0.5)-1

For TATA STEEL, Ke Value stands at 21% and as such TSR > Ke, this particular organization is doing
effectively with respect to its profitability.

References
Steel Sector Analysis Report - http://www.equitymaster.com/research-it/sector-
info/steel/Steel-Sector-Analysis-Report.asp

Ministry of Steel, India - Annual Report 2011-12 - http://steel.gov.in/Annual%20Report%20(2011-

12)/English/Annual%20Report%20(2011-12).pdf

IRON AND STEEL INDUSTRY IN INDIA March, 2012 - http://www.cci.in/pdf/surveys_reports/iron-

steel-industry.pdf

Sustainable steel - http://www.worldsteel.org/media-centre/key-facts.html

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TATA Steel - Strategic Analysis and Recommendations August 31, 2012

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