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IndianI:-Market

Section Steel Industry


Overview
Institute for Technology & Management, Kharghar
December 2010
Group 8
Index

Steel Industry
•Market Overview: Global and
Indian
•Market Segmentation
•Competitive Landscape
•PEST Analysis
•Regulatory Framework
•Growth Drivers of the Industry
•Challenges faced by the
Industry
TATA Steel
•Company Overview
•Products and Services
•Company History and Milestones
•Financial Highlights
•Segmental Result Analysis
Index

TATA Steel
•Peer Group Analysis
•Stock Chart Analysis
•Board of Directors and Shareholding
Pattern
•SWOT Analysis

Financial Model : TATA Steel


•Assumptions of the Model
•Historical and Projected Financials
•DCF Model
•Key Ratios
•IFRS Convergence

Annexure
•News Highlights
Investment Rationale

gest steel maker.


ns.
s made CORUS perform better.
erial Holding in India gives Tata Steel advantage over its peers.
overseas to reduce raw material prices.
profits in INDIAN steel industry.
EBITDA is highest for Tata steel & is growing steadily except 1QFY11 in
• Steel Industry in India
Section I:-Market Overview
Ranks 3rd in Global Steel Production After China &

Major Steel Producing Nations in World Steel Top Producers in


2009 2009
Rank Country Production Rank Company mmt
2009 2008 1 ArcelorMittal 77.5
1 China 567.8 500.3
2 Baosteel 31.3
2 Japan 87.5 118.7
3 POSCO 31.1
3 India 62.8 57.8
4 Nippon Steel 26.5
4 Russia 60.0 68.5
58.2 91.4 5 JFE 25.8
5 USA
World 1,226.5 1,329.0 7 Tata Steel* 20.5
Source: World Steel Association
Source: World Steel Association * Includes Corus and NatSteel

as 1,226.5 mmt in 2009, down from 1,329.0 mmt in 2008


p from 5th to 3rd in the Steel production
World’s Steel Production is 5.1% up from 4.3% in 2008
d Exporters of Steel
ction dipped by 8.7% in 2009 compared to previous year. China experienced a growth of 13.5%
of steel due to the increased domestic consumption
Figures in million
tonnes

Source:- Annual Report, MoS; IBEF

eel imports grew at 16.6% in 09-10 due to the increased domestic demand and reduced global
ndia goes up by 4.2% against reduction of 8.2% in w

Source:- Annual Report, MoS; IBEF

at a CAGR of 6.7% in 05 to CAGR of 9.3% in 09


sumption grew by 8% in 09-10 as against 52.3 MT in 08-09. 11-12E: 65MT
for steel is growing at an average of 8% and is expected to go up by 10% by 2015
driven by capacity expansion from 47.99 mtpa in 2004-05 to 72.76 mtpa in 2009-10.
nne capacity added during April-December 2009
Capacity :- 70 MT Expected Capacity by 2011-12 :- 124 MT
ta Consumption in India is only 47 kg (2008) against the world average of 190 kg and 400 kg in De
o fulfill the increased demand from Automobile and I

State No. of MoUs Capacity (mmt)


Orissa 49 75.66
Jharkhand 65 104.23
Chhattisgarh 74 56.61
West Bengal 12 21
Other States 22 18.20
Total 222 275.70(app.)
Source:- Joint Public Commission, IBEF

ed with various States for planned capacity of around 276 mn ton


are in the States of Orissa, Jharkhand, West Bengal, Karnataka, Gujarat and Maharashtra
has been planned so as to meet the increasing demand for steel by the growing automobile a
up a 12-million tonne plant in Jharkhand
Highlights of Steel Sector in India:

& Steel industry to India’s GDP : ~2.0%

IIP index is 6.2%

the 2nd largest producer of crude steel in the world by 2015-16

en formed for coating and painting facility whose demand is around 3 mn t

e with Nippon Steel for production of auto grade cold rolled products wit

help from Posco will produce higher grades of electrical steel for electr
Section II:-Market
Segmentation
Market segmentation – Product – End User wise
Product Wise End user wise

Construction

Automotives

Aerospace

Consumer Goods

Material Handling

§Corrosio §Tool §Billets §Hot Rolled


n Steel §Bars & Products Energy & Power
resistant §Heat Rods §Plates
steel Resistant §Structural & Sheets
Steel s §Coils Rail
Segmentation:- §Rails & §Strips
Wires §Cold Rolled
§ Products
l (NAS) production & Flat products constitute 43% §Sheets Engineering
§Coils
by Infrastructure, 30% by automotives & reaming 15% by §Strips
rest of the sectors like Aerospace, Packaging
§ Shipbuilding

Packaging
trategic/Key Industry given the inherent structure &

Traders, Brokers, Project Finance & exchanges Stockholders

Standardized Steel Products


Iron Ore Pig Iron Primary Steel Production

Mining Industry Steel Industry


Specialist Steel Products End User

Coke Direct Reduced Iron Secondary Steel Production

Finished Steel Products


Equipment, Transport & support services

Recycling Industry

h Coke are the main inputs for manufacturing steel. Pig Iron & DRI are intermediate products with vary
cts are heated at high temperatures & varied kinds of alloyed & non alloyed steels are produced.
el: Primary steel - Steel produced directly from iron ore, Secondary - Steel produced out of basic scrap
ude Steel is processed further into flat products, long products, specialist steel
Section III:- Competitive
Landscape
less consolidated as top 3 players command 44% of

Major Producers Mini Producers

JSW Steel EAF – 33 units

Essar Steel IF – 970 units

Ispat Industries MBF – 2 units

Jindal Steel &


Source:- MoS,2008-09 Power

0 both implying that there is an oligopoly in the industry & medium to high concentration

ude steel production


market share & ranks among top 10 producers of steel in the world. Its is also the lowest cost produc

el production & SAIL is the largest player with 26% market share
Competitor
‘Competitor Landscape’s in
Landscape
Steel Industry’
TATA STEEL SAIL JSW STEEL VISA STEEL ESSAR STEEL BHUSHAN STEEL

Mkt share ( in 13.0 26.0 12.0 1.0 6.8 3.0


production )
Mkt . Cap ( rs 51,931.3 8O,749.3 22,381.5 458.7 5,904.2 8062.5
in crore )
Free Float 68.7 14.2 55.0 27.0 10.0 30.8
(%)
FII (%) 16.8 4.4 31.1 4.8 2.3 1.9
FY’10 FY’10E FY’10 FY’10 FY’10E FY’10
Salesturnover 26,757.6 49,331.5 19,456.6 1,198.3 12,703.9 5,640.4
( Rs in
crore )
Revenue (30.9) (6.0) 19.7 12.9 10.1 5.2
growth ( YoY )
(%)
EBITDA ( Rs 10,146.6 10,944.2 4,747.8 197.6 1,930.1 912.5
in crore )
Net Profit 5046.8 6174.8 2022.7 47.4 185.2 421.3
EPS ( Rs in 56.4 14.9 106.6 4.3 1.6 99.2
crore )
% Chg ( YoY ) (103.2) 10.6 681.5 (24.3) (119) 38.2
ROCE (%) 13.7 31.4 18.4 14.3 10.9 10.7
ROE (%) 14.2 24.2 23.3 12.44 6.3 28.2
Equity 80.0 26 95 10 0 25
dividend (%)
D/E 0.8 0.2 1.3 3.6 1.5 3.2

Source:- Company filings. & mkt cap & float figures are as reported on company
website as on Sept. 2010
teel largest private player but going through a roug

d by 30% for FY10 which was mainly due to increase in competition and slow down of econo

t half of SAIL, its Net Profit (50.5 mn) is close to SAIL Net Profit(61.8).

what was estimated which was due to increase in

han what was estimated. This was due to increase in cost of raw material.

Competitor which means company is not able to make best use of its capital.

ans company is not able to generate sufficient cash internally as compare to their competitor

it enjoy’s good market share and it is expected that world steel consumption is going to inc
Section IV:- PEST Analysis
PEST Analysis
Section V:- Regulatory
Environment
National Steel Policy

•Price & Distribution control removed completely.


•Foreign Direct Investment allowed up to 100%.
•No restrictions on import of steel items in terms of value or quantity.
•Subsidy provided for the sale of Steel to State Small Industry Corporation.
•Floor prices for support have been abolished.
•The competition law prohibits the formation of cartel.
•Introduction of Export taxes @Rs.300/350per ton on Iron ore.
Section VI:-Growth Drivers
‘Major Contributors to the Steel Consumption’
Growth Drivers

•Key Growth Drivers: Construction, Automobiles, Infrastructure, C
Gas
•Huge source iron ore, Cheap Labour, quality man power
•Reduction in custom duty in respect of non-alloy steel producti
•The Counter Veiling Duty on the TMT roads and bars reduced fro
•The ministry of steel has approved 59 R&D projects costing Rs.
•Mergers and Acquisitions - major growth driver in the industry
scale

Source:- MoS Annual Report, IBEF

n India is the Construction industry with 61 per cent share


11% share and automobile sector with 8% share in the total consumption of steel
India’s Steel Industry to grow by 10% in next 2 years

Power
•Construction Opportunities: Eleventh Five Year Plan - Increase the
installed generation capacity by 79 GW
frastructure development to be the major growth driv

ays is close to 142 USD bn, indicating huge demand for steel in construction indu
about 55% of the total steel produce & is a major consumer of long products.
), budgeted allocation of ~$500bn has been made to infrastructure sector & a targ
budget for improvement & provision for housing & basic amenities

Roadways and Highways

•National Highway Development Program plans to construct and upgrade


more than 50,000 km of national highways by December 2015 bodes well
for the industry
frastructure development to be the major growth driv

Come Back of the Automobile Sector


round 30% of the total steel produce in India & is a major consumer of flat stee
e a global automobile hub, especially in the small car segment.
cle (PV) sales grew at a CAGR of 11.5%, commercial vehicle (CV) sales grew at a CAG
ndia have picked up Y-o-Y since April 2009. The auto sector constitutes ~10% of d
Section VII:-Challenges for
Steel Industry
‘Key Challenges for Steel Sector in India’

Land
•Limited with multiple use
•Local Issues – Social & Political
•Overlapping responsibilities between State and Central Government

Source:- Economic Times, Sept. 6,


2010
•Low Level of R&D in steel in India, High Cost of Debt
•Low Productivity, Inadequate Infrastructure
•India mostly in seismological zone-Additional costs, earthquake
resistant structures.
•Rising cost of inputs materials –may not be compensated by rise in
steel prices.
•Delays and costs involved in land acquisition, Raw Material
linkages, Statutory clearances and shortfalls in development of
infrastructure could adversely affect project viability.

Others
drastically from one region to another
•Distribution of minerals in the areas known is uneven and varies
•Indian Coal with high ash has limitations in terms of CO2 emissions
lease for mines
•Amount of time and long procedure for leasing and renewing the
methods remains characteristic of large areas of the industry
•Slaughter mining - lack of conservation and unscientific mining
Mining
‘Key Challenges for Steel Sector in India’
• TATA Steel
Section I:-Company
Overview
TATA Steel: A Glimpse
Features of TATA Details
Company Name TATA Steel
Parent Group TATA Group
Companies under TATA Steel TATA Steel India
Group TATA Steel Europe
TATA Steel South East Asia
Inception Founded in 1907

Listed BSE, NSE, Singapore, London


and Luxembourg Stock
Registered Office Exchanges
Bombay House, 24 Homi Mody
Street, Fort, Mumbai
No. of Employees 81,269 (2010)
TATA Steel: Geographical Presence

est steel company & 2nd Most geographically

city of 27 mn tonnes

in 50 markets and
rations in 26 countries

US $ 23.05 Bn

S $ 2.08Bn

= US $ 18 Bn
Tata Steel India
Tata Steel India

• Company’s ambitious 3 Mtpa Brownfield expansion at Jamshedpur


is on schedule

• Domestic steel demand shows strong momentum driven by strong
recovery in steel intensive sectors such as auto, construction
and infrastructure.

• Indian steel market remains tight in 2010


• Declining Chinese exports in 2H 2010, raises higher possibility of


regional price rise on tighter demand and supply balance
Tata Steel Europe

itio n •in g fo r th e fu tu re ” o n e co m p a n y ” - Ta ta S te e l E u ro p e C u sto m e r firs

• Marketing sales and distribution teams aligned directly with key
market sectors

S u p p ly C h a in P ro je ct


• Pan-European integrated supply chain
•O p e ra tio n s E fficie n cy

• Steel production organized around three hubs with manufacturing


optimized throughout Europe

• Pilot launched in Long EU operations hub
Section II:-Products and
Services
Global Facilities & Diverse Product Mix

Three production facilities


production capacity 11.5 mt
Distribution centers

nds - one production facilities


production capacity 6.9 mt
Distribution centers

one production facilities


production capacity 6.8 mt
Distribution centers

st Asia - one production facilities


production capacity .678 mt
Distribution centers
Finishing capacity in 7

t UK )- distribution centres
Business Description
Customer Segments



Section III:-Company
History and Milestones
Landmarks
•2004
• Award for energy conservation
• Tie up with Canadian Minnaean Building Solutions based on
housing and construction
• Ranked among global companies in the world's most
respected companies survey for CSR
• Signed definitive agreement to form a 50:50 joint venture
with L&T for setting up a port at Dhamra in Orissa on
October 29, 2004
•2005

• Joint Venture Agreements with Iranian Mines and Mining


Industries Development and Renovation Organization
• Signed a memorandum of understanding with Nippon Steel
Corporation of Japan
•2006

• Set up Jiggling and Hydro-Cyclone Plant


• Set up a processing unit at Noamundi mine


Landmarks (Contd…)
•2007
• Signed a MoU with Vietnam Steel Corporation
• Signed a MoU with Riversdale Mining Ltd.
• Signed a Joint Venture Agreement for Mount Nimba Iron Ore
deposits in Ivory Coast, West Africa.
•2008

• Best Establishment Award by the President of India, Mrs.


Patibha Patil
• Signed a contract with CMI FPE Ltd
•2009

• Joint Venture Agreement on 6th November 2009 with New


Millennium Capital Corp
• Tata Steel - Corus signed MoU on Teesside sale with
Marcegaglia and Dongkuk
• Entered into a Joint Venture Agreement with New
Millennium, Canada


Acquisitions

• In August 2004, Tata Steel entered into definitive


agreements with Singapore based NatSteel Ltd to
acquire its steel business for Singapore $486.4 million
(approximately Rs 1,313 crores) in an all cash
transaction
• In 2005, Tata Steel acquired 40% Stake in Millennium Steel
based in Thailand for $130 million (approx. Rs 600
crores)
• On 31 January 2007 Tata Steel won their bid for Corus after
offering 608 pence per share, valuing Corus at £6.7
billion
Section IV:-Financial
Highlights
Tata Steel: Financial Highlights


Financing Portfolio and Capital Raising

Equity Raising

-

• Raised `1,069.20 Crs (US$ 230 Mn) through preferential allotment issue of
shares and warrants to Tata Sons in July’10

Debt -

• Tata Steel Europe prepaid £112.5 Mn in May’10


• Repaid `1,020 Crs (US$ 220 Mn) in Q1 FY11

Fund Raising

• Contracted US$ 350 Mn loan for working capital purposes


• Finalized commitment to raise ` 3,000 Crs ( US$ 646 Mn), 20 year Non
• Convertible Debentures to fund the growth projects
• Steps taken to refinance part of Tata Steel’s Group debt
Financing Portfolio and Capital Raising
Portfolio Review -

•NatSteel Holdings Pte. Ltd. has sold its entire 27.03% stake in Southern
Steel
Berhad, Malaysia to Signal and Sdn Bhd at a total consideration of ~US$
72 Mn
Other Developments -


•RML is raising capital of A$ 337 Mn through private placement of A$ 102 Mn
and non- renounceable rights issue of A$ 235 Mn

•Tata Steel maintains its holding at the pre-rights level of 21.15% by


subscribing to its share in private placement and the rights issue at an
investment of around A$ 72 Mn

• RML is taking steps which will find long term solutions to logistics
Section V:-Segmental
Results Analysis
Steel – Segments according to Products & Geographie

he nature of the products, the differing risks and returns, the organisational str

perations, town services and Investment activities

It is one of the top steel providers in the Asia-Pacific with over 3,500 employees
(KZN)(Pty) Limited, Tata Steel Holding Pte Limited
ess Segment’s dropping growth saw improvement in Q4 o

growth rate reduced to -28% in FY 09-10.


hold on investments on new projects due to cash crunch situation.
ere was the sharp decline in volume due to the lack of credit among customers. As a consequence s
ntraction in 2009, partly due to

ienced in the first half of 2008-09.


d margins.
he second half of FY 10
vering from the losses due to downturn and showing a

similar to that of the Steel Business during the three years.


because of the inertia which was triggered during FY 08-09 (as mentioned earlier) which started improvi
Y 09-10, we can see that the growth rate reduced to -6% in Q2 and there after started rising.
growth in sales over last year.
growth of 23% while its production increased by 8% driven primarily by the revival in the domestic au
f the ‘Others’ Segment has been good in this year, especially in the last quarters and would probably co
‘Steel Business Contribution to Total Revenue’…

tal revenue by the segments over the last three years has marginally changed.
hat the changes are natural and related to economic changes i.e., they are mainly due to mar
the contribution of these segments is not related to a particular Segment Focus by TATA s
p decline & TS Thailand also saw a slight decline in

ate from 9% (FY09) to 4% which was due to bad Market Conditions in Europe.
of FY10. There was a decline of consumption to around 45% during the first half of 2009 d
)
metallic input cost which resulted fall in revenue for FY10.
‘Steel Business Contribution to Total Revenue’…

clined from 76% (FY09) to (54%) ( FY10).


of inventory bought prior to crisis and price pressure from competitors.
due to fall in domestic demand and weak export to Australia.
ion of Others include Tata Refactories Limited, Tata Metalinks, Tata Steel(KZN)(Pty) Limited,
from 38% (FY09) to 116% (FY10).
ing of inventory which resulted into low input prices and increase in profit.
‘Geographical Segmentation Analysis’…

he growth rate of Tata Steel has declined from 23% in FY09 to 3% in FY10.
he major reason for this was due to global economic slowdown.
here was also an increase in competition mainly in UK and other European Nations.
ncrease in Interest Expenses added to reduce in profit of Tata Steel than what was estimat
he prices and volume reduced to a great extent in this Financial Year.
mpact of high scrap prices in the last quarter depressed margins.
‘New Geography Venture of Tata Steel’s in Canada’…

al Corp (NML) for developing a direct shipment ore project in Canada.


1.

of a feasibility study, it will arrange to fund the entire project cost of $300 mn (Rs 1

iary, a major raw material push as the 20 mn tonne capacity.

of date.

ncrease their profitability.


Section VI:-Peer Group
Analysis
Peer Group
Peer Group Analysis
Analysis
Particulars Tata Steel SAIL JSW Steel
SAIL has the highest market share amongst the peers of TATA Steel which in Rs. 76
teel.
TATA Steel FY10
has theFY09 FY08 FY10 FY09 FY08 FY10
highest FY09 FY08
EBITDA levels Rs. 113.1 bn and also net worth of Rs. 6
EBITDA 113.1 115.9 110.2 101.54 111.7 155.6 60.9 35.2 49.0

Market Cap 607.1 450.9 506.4 763.4 603.5 656.7 261.1 157.2 132.4

Total Assets 134.3 120.5 381.7 402.8 359.9 274.7 56.5 48.59 32.2

Revenues 267.6 268.4 221.9 439.0 487.2 459.9 194.6 151.8 126.3

PAT 50.5 52.1 46.9 67.5 61.7 75.4 20.2 4.6 17.3

Net debt 252.4 269.4 180.1 165.1 75.6 30.5 115.9 112.8 75.5

Net debt / 0.78 0.78 0.67 0.39 0.21 0.18 1.29 1.2 0.88
equity ratio
Net Worth 622.0 571.2 453.2 498.3 357.1 261.1 212.9 192.3 152.2

Reports of the respective companies and the Market cap. as per the last audited Balance Sheet
Peer Group Analysis

Sail is the largest player revenue wise followed


by Tata Steel

uarterly PAT and EBITDA is highest for Tata steel & is growing steadily except
QFY11
Section VII:-Stock Chart
Analysis
Tata Steel Stock Price Movement

2010-Barack Obama’s comments on banks; & BSE traded below 17000 & TATA steel prices started decreasing.
Apr, 2010-Goldman Sachs fraud causes a fall in Asian market & BSE

trong domestic performance & recovery at its European operations


July, 2010- Tata steel announced its Q1FY11 results with a significant incre
production

t a 350 mn Euro (USD510 million) contract to supply rail tracks to French operator SNCF & from December 2009

Sept, 2010-Increasing global and domesti

2009-Q2FY10 results announced, net profit slipped 49.5%


TATA Steel & Peers SAIL And JSW

steel share price has shown stock movement close to base price (1st sep 2009)
s stock movement is nearly same as the Tata Steel’s stock
s stock has shown an upward movement after February 2010 as compared to Tata steel and JSW
Metal Index

rowth had hit the metal sector in India but soon the index picked up due to recovery in steel demand globally

Apr, 2010-European shares drifted lower in volatile trade on unease over euro zone sovereign deb

al companies in India have paid higher advance tax in the Q3FY10 compared to the same period last year. By gaining 0.74 pe

Sept, 2010 – Reviving global economy and increasing demand


SENSEX, Metal Index and TATA Steel

el stock and metal index are lower from August, 2010 levels.
as shown more steady movement in comparison to Metal Index and TATA Steel stock price movem
el stock price and Metal Index movement are almost same from 1st September, 2009 to 31st Aug
Section VIII:-Board of
Directors & Shareholding
Pattern
Shareholding Pattern
Shareholders %
Indian Bodies Corporate 32.37
Trust 0.11
Mutual Funds/UTI 3.70
Financial Institutions/Banks 0.25
Government 0.01
Insurance Companies 22.26
FII 15.57
Foreign bodies DI 0.01
FII-DR 0.55
Non-Institution Bodies Corporate 3.41
Individual shareholders holding nominal 18.40
share capital up to Rs. 1 lakh

Individual shareholders holding nominal 2.88


•The of
share capital in excess major
Rs. 1stockholding
lakh is of Indian bodies Corporate in TATA Steel to a
•Insurance Companies hold 22.26 per cent.
•The individual
Shares held by Custodians and againstinvestors
0.64 hold 20 per cent of the shares in TATA Steel.
which Depository Receipts have been
issued

Source: moneycontrol.com
Board of Directors

• Ratan N. Tata Chairman / Chair Person


• H M Nerurkar Managing Director
• Ishaat Hussain Non-Executive Non-Independent
Director
• Kirby Adams Non-Executive Non-Independent
Director
• B Muthuraman Vice Chairman
• Nusli N. Wadia Independent Non-Executive Director
• Subodh Bhargava Independent Non-Executive Director


• Source: Annual Report FY 2010


Section IX:-SWOT Analysis
SWOT Analysis
• Financial Model: TATA
Steel
Section I:-Assumptions
Revenue Model Assumptions

Steps of Revenue Model


• Calculated India’s steel production which will be 147 million MT


by 2016 growth rate of the sector at an average of 8.37%
over last 5 years
• Forecasted India’s population growth till 2016 by WHO’s
estimate and multiplied it with per capita consumption
which we forecasted by taking average of last 5 years.
The PCC is at around 67 kg and multiplying that by
population figure we get Indian consumption at 87 MMT
in 2016
• Indian Steel export average growth rate for last 5 years stands
at -6.49%
• Calculated Tata Steels market share and found out capacity
increases to know the total expected production by 2016
at 44.97 MMT
• Found out the current price of coking coal and iron ore and
their future price increases to find out production cost at
Rs 25400 and we have estimated it to increase to Rs
27000 by 2016 due to increase in raw material cost
Revenue Model Assumptions

• Found out the current market price of steel at Rs 42800 and


we estimated it to increase to Rs 44340 by 2016
• We have increased market price with the increasing
production cost
• Calculated revenue by multiplying production with price
• Growth forecasted by increase in revenue year on year
• We have forecasted revenue at conservative estimates
because we do not believe that the per capita
consumption target set by GOI will be met and due to
no significant increase in our steel exports the
company may not produce at full capacity.
• Cost forecasted on the basis of historical costs
Section II:-Historical and
Projected Financials
Historical Balance Sheet
Fiscal Year Ending-------> FY 08 FY09 FY10
ending Mar Mar Mar
Consolidated Consolidated Consolidated
Audited Audited Audited
Equity Capital 730.8 730.8 887.4

2% Convertible Preference Capital 5,472.7 5,472.7 -


Reserves and Surplus 21,097.4 23,972.8 36,074.4
Net Worth 27300.88 30176.26 36,961.8
Minority Interest - - -
Loans
Secured 3,520.6 3,913.1 2,259.3
Unsecured 14,501.1 23,033.1 22,979.9
Total Loans 18,021.7 26,946.2 25,239.2
Deferred tax Liability 681.8 585.7 867.7

Provision for Employee compensation 1,071.3 1,033.6 957.2


Foreign Currency Monetory Item - - 207.0
Warrants Issued by a Subsidiary - - -
Total Liability 47,075.7 58,741.8 64,232.8

Application of funds
Fixed Assets
Gross Block 20,847.0 23,544.7 26,149.7
Depreciation 8,123.0 8,962.0 10,037.6
Impairment 100.5 100.5 106.1

Net Block of Fixed Assets 12,623.56 14,482.22 16,006.03


Investments
Long term investments 3,066.4 39,102.5 43,260.4
Current Investments 1,036.8 3,269.3 1,719.2
Total Investments 4,103.2 42,371.8 44,979.7
Historical Balance Sheet
Fiscal Year Ending-------> FY 08 FY09 FY10
ending Mar Mar Mar
Consolidated Consolidated Consolidated
Audited Audited Audited
Foreign Currency Monetory Item - 471.7 -
Deferred Tax Assets - - -
Goodwill - - -
Net Current Assets
Current Assets
Stores and Spare parts 557.7 612.2 623.8
Stock in Trade 2,047.3 2,868.3 2,454.0
Sundry Debtors 543.5 636.0 434.8
Interest accrued on investments 0.2 - 0.3
Cash and Bank Balances 465.0 1,590.6 3,234.1
Loans and Advances 33,348.7 4,561.0 5,499.7
Total Current Assets 36,962.4 10,268.1 12,246.7
Less: Current Liabilities and Provisions
Current Liabilities
Sundry creditors 3,243.4 3,842.8 4,086.7
Subsidiary companies 115.7 1,358.1 1,514.3
Interest accrued but not due 231.1 506.7 676.7
Advances received from customers 226.0 297.4 335.0
Liability towards Investors Education and 39.0 34.9 40.5
Protection Fund under Section 205C of the
Total Current
Companies Liabilities
Act, 1956 3,855.3 6,039.9 6,653.1
Provisions 2,913.5 2,917.2 2,346.5
Total Current Liabilities and Provisions 6,768.8 8,957.1 8,999.6
Net Working Capital 30,193.66 1,311.04 3,247.08
Miscellaneous Expenditure 155.11 105.07 -
Total Assets 47,075.5 58,741.8 64,232.8
Historical Profit & Loss A/C
For the Period--------> FY2008 FY09 FY10
ending Mar Mar Mar
Standalone Standalone Standalone
All figures in crores Audited Audited Audited
REVENUES
Sale of products 21392.39 25,945.45 25,755.52
Sale of power and water 546.33 566.31 656.80
Income from town , medical and other services 40.66
other operating income 210.17 291.32
40.7 305.16
40.3
Total gross sales 22189.55 26843.73 26,757.80
less excise duty 2498.52 2527.96 1735.82
Net sales 19691.03 24315.77 25,022.0
EXPENSES
purchase of finished and semi finished steel 387.94 169.1
358.9
raw materials consumed 3355.2 5709.91 5494.74
payments and provisions for employees 1815.95 2,305.8 2,361.5
operation and other expenses 5141.10 6213.58 6813.33
administrative and other expenses 1152.56 937.82 1557.37
total manufacturing expenses 11852.75 15525.99 16,396.0

Earnings Before Interest, Depreciation, Taxes and Amortization(EBITDA) 7838.28 8789.78 8,626.0
depreciation less expenses transferred to capital account 659.11 629.75 757.1
EBIT 7179.17 8160.03 7,868.9
other income 242.8 853.8
308.3
Total Income 7421.97 8,468.3 8,722.7
Net finance charges 786.5 1,152.7 1,508.4
EBT 6635.47 7315.61 7214.30
profit from exceptional items 430.89 0 0
taxes 2379.33 2113.87 2167.5
PAT 4687.03 5201.74 5046.80
Projected Balance Sheet
Tata Steel FY 2011E FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E
(INR in millions) 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
Assets
Current assets:
Cash & cash equivalents -7,373.2 -3,656.8 4,950.8 12,655.1 29,024.3 48,826.0
Short-term investments 0.0 0.0 0.0 0.0 0.0 0.0
Receivables, net 197.6 719.0 825.9 972.9 1,571.3 2,097.2
Merchandise inventories 1,952.0 3,471.5 3,987.9 4,697.7 7,587.2 10,126.6
Prepaid expenses & other current assets 4,807.6 6,162.4 7,079.2 8,339.1 13,468.3 17,976.2
Total current assets -416.0 6,696.1 16,843.8 26,664.8 51,651.1 79,026.1

Investment properties 25.2 25.2 25.2 25.2 25.2 25.2


Property and equipment, net 7,167.5 41,840.4 49,096.0 57,767.1 69,377.9 90,075.2
Other assets 25.3 25.3 25.3 25.3 25.3 25.3
Total assets 6,776.8 48,561.8 65,965.1 84,457.2 121,054.2 169,126.5

Liabilities and shareholders' equity


Current liabilities:
Accounts payable 806.5 1,150.9 1,322.2 1,557.5 2,515.4 3,357.4
Accrued expenses & other current liab. 1,975.7 2,434.2 2,796.3 3,293.9 5,320.0 7,100.6

Total current liabilities 2,782.2 3,585.1 4,118.4 4,851.4 7,835.4 10,458.0

Long-term debt 25,239.2 25,239.2 25,239.2 22,782.0 22,782.0 22,782.0


Other long-term liabilities 24.1 24.1 24.1 24.1 24.1 24.1
Total current and long-term liabilities 28,045.5 28,848.4 29,381.7 27,657.4 30,641.5 33,264.0

Shareholders' equity 6,532.9 21,060.7 37,930.7 58,147.1 91,760.1 137,209.8


Total liabilities and shareholders' equity 34,578.4 49,909.1 67,312.4 85,804.5 122,401.5 170,473.8
Projected Profit & Loss A/C
Tata Steel FY 2011E FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E
Quarterly & Annual Financials 31 Mar 11 31 Mar 12 31 Mar 13 31 Mar 14 31 Mar 15 31 Mar 16
(INR in millions) 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
Income statements

Total revenue 31,524.6 37,590.9 43,064.9 50,729.4 81,932.3 109,654.8


Y/Y Growth (%) 10.6% 19.2% 14.6% 17.8% 61.5% 33.8%

COGS & occupancy costs 7,767.2 9,773.6 11,196.9 13,189.7 21,302.4 28,510.3
Gross profit 23,757.4 27,817.3 31,868.0 37,539.8 60,629.9 81,144.6
Gross profit margin (%) 75.4% 74.0% 74.0% 74.0% 74.0% 74.0%

Operating expenses
operation and other expenses 6,508.8 8,270.0 9,474.3 11,160.5 18,025.1 24,124.1
administrative and other expenses 1,382.5 1,654.0 1,894.9 2,232.1 3,605.0 4,824.8
Operating profit 15,866.1 17,893.3 20,498.9 24,147.2 38,999.8 52,195.7
Operating profit margin (%) 50.3% 47.6% 47.6% 47.6% 47.6% 47.6%

Other income (expense), net 5,694.6 -1,697.3 -1,691.7 -1,609.4 -1,527.1 -1,527.1
Income tax provision (benefit) 2,050.5 1,668.2 1,937.1 2,321.4 3,859.7 5,218.9
Net profit 19,510.1 14,527.8 16,870.0 20,216.4 33,613.0 45,449.7
Net profit margin (%) 61.9% 38.6% 39.2% 39.9% 41.0% 41.4%

Weighted average basic shares 90.2 88.7 88.7 88.7 88.7 88.7
Weighted average diluted shares 90.2 88.7 88.7 88.7 88.7 88.7

Basic EPS 216.3 163.7 190.1 227.8 378.8 512.2


Diluted EPS 216.3 163.7 190.1 227.8 378.8 512.2
Section III:-DCF Model
DCF Model
Tata Steel Weighted average cost of capital
WACC & DCF Valuation Market value of equity
(INR in millions) Total shares outstanding (mln) 90.22
Value per common stock Market price per share SAR 661.25
Value of operations
Sum of PV of FCFF 35,930.7 Total market value of equity 59,658.6
PV of terminal value 53,751.7 Market value of debt 27,585.7
Mid year Adjustment 1.10 Market value of equity 59,658.6
Value of operations 98,833.8
Less Total capital (debt+equity) 87,244.4
Net debt 27,532.0 Cost of debt
Minority interest 0.0 Average pre-tax interest cost of debt 11.0%
Other liabilities net of assets 24.1
Unfunded pension obligation 0.0 Average tax rate 10.0%
Value available to common stockholders 71,277.7 Average post-tax interest cost of debt (kd ) 9.9%
Total diluted shares 90.2 Debt/(Debt+Equity) (Wd ) 31.6%
Value per share INR 790.03 Weighted average cost of debt (Wd × kd ) 3.1%
Cost of equity (CAPM)
Risk free rate (Rf) 8.0%
Terminal value Market rate of return (Rm) 14.0%
NOPAT for FY 2016 46,662.3
WACC 16.1% Beta (β) 1.82
Perpetual growth rate (g) of NOPAT 11.5% Risk premium β(Rm-Rf) 10.9%
ROIC selected (Manual input) 13.0% Cost of equity (ke ) 18.9%
Terminal value FCFF/(WACC-g) 131,421.5
Equity/(Debt+Equity) (We ) 68.4%
Discounting factor 40.9%
PV of terminal value 53,751.7 Weighted average cost of equity (We × 12.9%
ke )
WACC [Wdkd + Weke] 16.1%
DCF Model
PV of FCFF ROIC selection
FY FCF Gr. (%) FCFF PV
2010 1,892.1 1 Manual input ROIC
2011 57.2% 2,975.2 2,563.4
1 Manual input 13.0%
2012 70.2% 5,064.1 3,759.0
2013 96.5% 9,950.8 6,363.9 2 Last year ROIC
2014 15.0% 11,439.4 6,303.1
2015 53.7% 17,581.7 8,346.4 3 WACC 16.1%
2016 19.5% 21,014.3 8,594.9
Sum of PV of FCFF 35,930.7

Sensitivity Analysis
Weighted average cost of capital Step 0.50%
Perpe 790.03 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5%
tual
3.3% 4,353.88 3,937.02 3,579.47 3,269.68 2,998.93 2,760.46 2,549.01
growt
h 3.5% 4,425.35 3,989.84 3,618.34 3,297.98 3,019.13 2,774.41 2,558.10
3.8% 4,502.49 4,046.39 3,659.64 3,327.82 3,040.27 2,788.87 2,567.39
4.0% 4,586.06 4,107.14 3,703.65 3,359.38 3,062.43 2,803.88 2,576.92
4.3% 4,676.99 4,172.64 3,750.71 3,392.85 3,085.73 2,819.51 2,586.69
4.5% 4,776.39 4,243.53 3,801.19 3,428.43 3,110.29 2,835.80 2,596.74
4.8% 4,885.58 4,320.58 3,855.54 3,466.40 3,136.25 2,852.84 2,607.08
Step 0.25%
Section IV:-Key Ratios
Key Ratios

Ratio 2008 2009 2010


EPS 96.52 122.50 -4.93
Dividend / share 15.12 16.26 14.86
Book Value / Share 474.38 391.84 267.25
Return on equity per share 43.10 21.80 -9.30

Dividend Payout Ratio 0.08 0.24 0.62


EPS Growth NA -62.42 -138.56
Dividend Growth NA 26.59 10.99
Dividend Per Share Growth NA 20.89 -2.14
Gross Margin 54.2% 50.5% 56.9%
EBITDA Margin (Without 0.18 0.09 0.06
adjustment)
Key Ratios

Ratio 2008 2009 2010


Net Margin 9.4% 3.3% -2.1%
Return on assets 13.4% 5.3% -2.7%
Sales per employee 15.02 17.02 12.60
Total Asset Turnover 1.43 1.61 1.28
Return on Common Equity 5.18 0.25 0.37
Quick Ratio 1.22 1.13 0.90
Current Ratio 1.87 1.78 1.46
Interest Coverage Ratio 5.0 3.0 1.6
Fixed charge coverage ratio 0.29 0.14 0.11
Section V:-IFRS
Convergence
IFRS Convergence
Topic IGAAP IFRS Impact of IFRS Current Treatment Impact on Tata Steel
in company

Abandonment No guidance for Full eventual Decrease in fixed The company makes The company will have to
cost estimation of
costs. Section V:-IFRS
liability to be
recognized in the
beginning at the
assets and liabilities
and higher finance
costs due to
provision yearly till
the end of the mine
life under specific
make provisions for assets
like mines initially itself
by discounting the value

Convergence
discounted unwinding of the guidance by IGAAP. of liability to its present
present value. discount. value.

Exploration & Successful effort Moving towards Profitability to be The company follows Under IFRS the company
evaluation or full cost successful effort negatively impacted successful efforts will have the choice to
expenditure method. method. as cost pertaining to method and either capitalize the
unviable discoveries capitalizes all expenses or to charge
will have to be evaluation and efforts them directly to the
expensed in the year. expenditure and income and expenditure
depreciates them over statement.
the life of the assets.
IFRS Convergence
Topic IGAAP IFRS Impact of IFRS Current Treatment Impact on Tata Steel
in company

FCCBs No clear Mandatory to Increases earnings The premium on The huge FCCB exposure
guidelines on segregate each volatility due to fair redemption or the of Rs.22.3Bn which has to
separation of component such value changes in the discount on issue are be redeemed at a premium

Section V:-IFRS
components. as debt and conversion options. treated separately in of 23% will have a huge
derivative and Also interest the books of accounts impact as the premium
fair value expense may and are not spread will now be distributed
changes on increase as cost of over the tenure of the over the life of the bonds.

Convergence
conversion optionissuance and
recognized in
P&L.
redemption premium
is included in
bonds.

interest expense.
• Annexure
Section I:-Major News
News Highlights

•GLOBAL STEEL MARKET


• Steel using sectors likely to slow in coming quarter as inventory
adjustment boost and fiscal stimulus wanes
• Increased uncertainty around near term outlook in China and further
slowdown is expected with policy tightening having an impact 
•EUROPEAN ECONOMY UNCERTAIN 

• Sovereign debt and fiscal crisis not fully resolved and large spending
cuts pending/ underway
• Unemployment is high
• Bank lending remains weak
• UK auto production is forecast to grow by 24% in 2010
•MACRO RISKS

• Slowdown in China will impact European engineering exports


• Construction at further risk from Government spending cuts
•MARKET UPDATE 

• Imports into EU remain relatively low and import share has fallen
• EU27 remains a net exporter, which helping to support capacity
utilisation

News Highlights

•OUTLOOK INDIA & S.E ASIA: 


•India

• 10 Mtpa Brownfield expansion in Jamshedpur on track


• India’s finished steel demand to grow at 12% CAGR over FY10-13, led
by strong demand growth from Autos, Consumer Durables and
Engineering sectors
• Threat of Chinese imports delay price increases in domestic market
• India to remain a net steel importer over FY11-13, as demand likely to
outpace supply 
•South East Asia

• China, Australia and Vietnam, where NatSteel operates are expected


to register positive GDP in 2010 on the back of strong demand
from the construction sector
• The construction sector in Singapore is projected to witness strong
growth in the range of 8-10% in this year and the following year
• Thai Government has approved increased budget for public sector
construction
• Private investment in Thailand is projected to grow at a high rate,
supported by high capacity utilization and growth in export –
oriented industry such as motor vehicles , electronic parts and
electrical appliances

News Highlights

•PROJECTS UPDATE
• 3 Mtpa Brownfield expansion at Jamshedpur: 

• Capex incurred till Sep’10 : Rs 5,732 Crs (US$ 1,276 Mn), H2 FY11 Capex planned :
Rs. 2,963 Crs (US$ 659 Mn)
• Project progression as per planned. Commissioning in H2 2011-12
• Product Mix – 2.54 Mtpa Hot Rolled Coil and 0.3 Mtpa Slabs
•Tata Steel Processing & Distribution Ltd (TSPDL): 

• 100% subsidiary of Tata Steel since July 2009


• Leadership position in steel service centre business in India with current processing
capacity of over 1.25 million tonnes per annum
• Acts as strategic partner for Automobile players in India
•Tata BlueScope: 

• Tata BlueScope Steel Limited(TBSL) a 50:50 JV with BlueScope Steel Limited


• Engaged in the business of manufacturing building products & solutions such as roll
formed roofing, wall claddings and Pre-Engineered Buildings (PEBs) from metal &
colour coated steel.
• Existing operations include three state of the art facilities with a total installed
capacity of 136,000 TPA in Pune, Bhiwandi and Sriperumbudur, to manufacture
building products
• Presently implementing a green field project for setting up of upstream metal coating
(capacity of 250,000 MT) and colour coating (150,000 MT) facilities at
Jamshedpur, to be operational by April 2011
• A strong brand for Pre-Engineered Buildings (PEBs)
Thank You!