Tata Steel

(CMP/TP: `630/802) (Buying Range: `630 – `643)

‰ Tata Steel is expanding its capacity by 2.9mn tonnes in ‰ Tata Steell is in the
h process off developing
d l a coking
k coall
Jamshedpur through brownfield expansion. The mine in Mozambique and an iron ore mine in Canada
project is expected to be commissioned by the end of to enhance Tata Steel Europe’s (TSE) raw-material
FY2012E. From FY2013E, the proportion of sales integration levels. The projects are expected to be
volume from India, which is a high-margin centre, is commissioned by October 2011 with lower offtake
expected
t d to
t increase
i substantially,
b t ti ll thereby
th b leading
l di t
to initially; the full benefit is expected to accrue in
significant earnings accretion. We expect the sales FY2013E. However, we have not factored the savings
volume to register a 15.1% CAGR over FY2011-13E. in our estimates, indicating upside to our target price.

Sales volume to grow by 25% yoy in FY2013E EBITDA to increase at 17.6% CAGR over FY2011-13E
10 30
25 000
25,000 16
9
25 14
8
20,000
7 12
20
(mn tonnes)

6 15,000 10
5 15

(%)

(` cr)
8

(%)
4 10,000
10 6
3
2 4
5 5,000
1 2
0 0 0 0
FY2010 FY2011E FY2012E FY2013E FY2010 FY2011E FY2012E FY2013E
Sales volume (LHS) yoy growth (RHS) EBITDA (LHS) margin (RHS)

Source: Company, Angel Research Source: Company,

p y, Angel
g Research

Valuation Snapshot
Y/E Sales OPM PAT EPS RoE P/E P/BV EV/EBITDA EV/Sales
March (` cr) (%) (` cr) (`) (%) (x) (x) (x) (x)
FY2012E 131,596 12.4 6,621 69.1 18.6 9.1 1.6 5.7 0.5
FY2013E 147,803 14 7
14.7 9,675 100 9
100.9 22 7
22.7 62
6.2 13
1.3 39
3.9 04
0.4
 Tata Steel

‰ The company has undertaken various ‰ With higher contribution to profitability from integrated
cost-reduction initiatives and restructuring measures Indian operations, we expect a gradual decline in debt
at TSE, which would lead to savings of US $375mn equity ratio and increase in interest coverage ratio
annually. We expect the current normalised from FY2013E.
EBITDA/tonne of US $50 at TSE to increase to US $75
on the back of these initiatives in FY2013E. ‰ The stock is currently trading at 5.7x FY2012E and
3.9x FY2013E EV/EBITDA. On a P/B basis, the stock
trades at 1.6x FY2012E and 1.3x FY2013E earnings.
We maintain a Buy on the stock.
Leverage
g ratios to improve
p gradually
g y

4
(x)

0
FY2010 FY2011E FY2012E FY2013E

Net Debt/EBITDA Interest coverage ratio

Source: Company, Angel Research

 Tata Steel

Profit & Loss Statement (Consolidated) Balance Sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011E FY2012E FY2013E Y/E March (` cr) FY2010 FY2011E FY2012E FY2013E
Net Sales 102,393 116,917 131,596 147,803 SOURCES OF FUNDS
% chg (30.5) 14.2 12.6 12.3 Equity Share Capital 887 959 959 959

Total Expenditure 94,350 101,173 115,286 126,026 Reserves & Surplus 21,927 31,815 37,562 45,902

EBITDA 8,043 15,743 16,311 21,777 Shareholders Funds 22,814 32,774 38,520 46,861

% chg (55.6) 95.7 3.6 33.5 Share Warrants 17.5 17.5 17.5 17.5

(% of Net Sales) 7.9 13.5 12.4 14.7 Minority Interest 884 884 884 884
p
Depreciation& Amortisation 4,492
, 4,153
, 4,443
, 4,851
, Total Loans 53,307 57,807 54,307 51,307

EBIT 3,551 11,591 11,867 16,927 Deferred Tax Liability 1,654 1,654 1,654 1,654
Provision for Employee
Interest & other Charges 3,022 2,948 3,258 3,592 964 964 964 964
Separation
Other Income 1,186 877 658 296 Total Liabilities 79,641 94,100 96,347 101,687
Extraordinary Inc/(Expense) (1,684) - - - APPLICATION OF FUNDS
PBT 31 9 519
9,519 9 267
9,267 13 631
13,631 G
Gross Block
Bl k 97 289
97,289 101 289
101,289 105 789
105,789 107 789
107,789
Tax 2,152 3,141 2,780 4,089 Less: Acc. Depreciation 60,764 64,917 69,360 74,210
(% of PBT) 6,941.4 33.0 30.0 30.0 Net Block 36,525 36,372 36,429 33,579

PAT (2,121) 6,378 6,487 9,541 Capital Work-in-Progress 9,271 10,271 10,771 11,271
Add: Share of earnings of Goodwill 14,542 14,542 14,542 14,542
127 125 150 150
associate I
Investments
t t 5 418
5,418 5 418
5,418 5 418
5,418 5 418
5,418
Less: Minority interest (15) (16) (16) (16) Current Assets 43,868 59,233 67,743 71,843
Net income (2,009) 6,487 6,621 9,675 Current liabilities 29,983 31,736 38,555 34,964
Adj. Net income (326) 6,487 6,621 9,675 Net Current Assets 13,885 27,498 29,188 36,878
% chg - - 2.1 46.1 Total Assets 79,641 94,100 96,347 101,687
 Tata Steel

Cash Flow Statement (Consolidated) Key Ratios

Y/E March (` cr) FY2010 FY2011E FY2012E FY2013E Y/E March FY2010 FY2011E FY2012E FY2013E
Profit before tax 31 9,519 9,267 13,631 Per Share Data (`)
Depreciation 4,492 4,153 4,443 4,851 FDEPS (25.0) 67.7 69.1 100.9
Change in Working Capital 10,376 429 (358) (2,153) Cash EPS 28.0 111.0 115.4 151.5
Less: Other income - - - - DPS - 9.3 9.1 13.9
Direct taxes paid 2,152 3,141 2,780 4,089 Book Value 257.3 341.8 401.8 488.8
Cash Flow from Operations 12,747 10,960 10,572 12,239 Operating Ratio (days)
(Inc) / Dec in Fi
(Inc)./ Fixed
ed Assets 1 829
1,829 (5 000)
(5,000) (5 000)
(5,000) (2 500)
(2,500) Inventory 71 65 75 60
(Inc)./ Dec. in Investments 993 - - - Receivables 32 35 35 35
(Inc)./ Dec. in loans and
advances - - - - Payables 77 70 80 50
Other income - - - - Returns (%)
Cash Flow from Investing 2 822
2,822 (5 000)
(5,000) (5 000)
(5,000) (2 500)
(2,500) RoE - 23 3
23.3 18 6
18.6 22 7
22.7
Issue of Equity 8,075 4,368 - - RoCE 5.5 14.4 13.2 17.4
Inc./(Dec.) in loans (6,593) 4,500 (3,500) (3,000) Dividend yield - 1.5 1.4 2.2
Dividend Paid (Incl. Tax) (909) (895) (874) (1,335) Valuation Ratio (x)
Others (fx effect) (15,502) 109 134 134 P/E ((on FDEPS)) - 9.3 9.1 6.2
Cash Flow from Financing (14,930) 8,082 (4,240) (4,201) P/BV 2.4 1.8 1.6 1.3
Inc./(Dec.) in Cash 639 14,042 1,332 5,538
EV/Sales 1.0 0.8 0.5 0.4
Opening Cash balances 6,148 6,788 20,829 22,161
Closing Cash balances 6,788 20,829 22,161 27,699 EV/EBITDA 12.7 6.2 5.7 3.9
Research Team Tel: 022 - 3935 7800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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Disclosure of Interest Statement Tata Steel

1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
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