7 May 2021
4QFY21 Results Update | Sector: Metals
Tata Steel
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
TATA IN
1,198
1319.6 / 17.9
1129 / 263
28/141/242
10598
CMP: INR1,101
TP: INR1,205 (+9%)
Neutral
Deleveraging to be strong despite capex
Near-term margin outlook is positive
Financials & Valuations (INR b)
Y/E MARCH
2021 2022E 2023E
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. Yield (%)
FCF Yield (%)
15.9
1.9
7.0
2.3
28.4
4.3
1.4
3.5
5.5
24.2
6.9
1.3
4.6
4.5
16.1
1.2
11.8
11.8
36.2
0.7
38.1
26.2
23.6
0.5
19.7
16.7
31.3
1,563
305
82.6
19.5
69.0
577
2,060
560
304.7
27.2
254.5
760
1,870
398
191.1
21.3
159.5
-37.3
859
Tata Steel (TATA) has been a key beneficiary of rising steel prices. As
expected, it reported a strong 4QFY21, with consolidated EBITDA rising
205% YoY to INR142b (its highest ever) on the back of higher prices. Net
debt fell INR123b QoQ to INR826b (lowest since Mar’18).
We expect steel prices and margin to stay strong on tightening demand-
supply in Asia and raise our FY22E/FY23E EBITDA estimate by 77%/36%
and our TP by 35% to INR1,205/share. Net debt is expected to decline by a
further INR188b in FY22E to INR638b, despite the resumption of capex for
the 5mtpa expansion of the Kalinganagar plant.
TATA is trading at a FY22E EV/capacity of USD899/t, which is at a 30%
premium to its five-year average. This is already discounting the expected
deleveraging from the current upcycle. We therefore remain
Neutral.
661.2 269.0
Best ever quarterly EBITDA
TATA’s consolidated revenue/EBITDA/adjusted PAT rose 26%/50%/99% QoQ
(est. +1%/-3%/0%) to INR499b/INR142b/INR76b.
Standalone:
EBITDA rose 37% QoQ to INR91.9b (est. INR86.8b) on the
back of a 19% improvement in realization to INR64,153/t (up 5% v/s our
estimate). Volumes were down 1% QoQ to 3.3mt (in line). EBITDA/t stood
at INR27,800/t, up 39% QoQ (up 6% v/s our estimate). Adjusted PAT stood
at INR56b, up 99% QoQ (up 6% v/s our estimate).
Tata Steel Europe (TSE)
posted an EBITDA of INR11.9b (est. INR31.3b) as
against a loss of INR7.2b in 3QFY21. EBITDA/t stood at USD66/t (est.
USD170/t). The miss on EBITDA was due to higher carbon credit provision
of GBP69m (USD39/t) and a miss on realization as only one-fourth of the
QoQ increase in EU steel prices was realized by TSE. This was due to
contracts fixed earlier at lower prices.
Tata Steel BSL
had earlier reported an EBITDA of INR25.7b (est. INR20.5b),
up 58% QoQ, on the back of higher realization (+20% QoQ) at
INR61,367/t. EBITDA stood at INR21,510/t, up 52% QoQ.
Consolidated net debt fell by INR123b QoQ to INR826b, led by strong FCF
generation (INR88b) and receipt of final call on partly paid-up shares
(INR32b). Net debt reduction was INR245b in FY21.
Consolidated revenue/EBITDA/adjusted PAT rose 12%/75%/7x YoY to
INR1,563b/INR305b/INR82.6b in FY21.
OCF/FCF stood at INR379b/INR310b in FY21, up 88%/216% YoY due to
higher EBITDA, working capital release of INR101b (adjusted for export
advance), and a lower capex of INR70b (v/s INR104b in FY20).
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Mar-21 Dec-20 Mar-20
34.4
34.4
34.4
25.4
26.1
29.9
18.6
16.9
12.4
21.6
22.6
23.3
FII Includes depository receipts
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Tata Steel
KPO-II expansion back on track
The company has restarted expansion work on the 5mtpa KPO-II, which would
be commissioned in 2HFY24. This will involve a capex of INR230b, of which
INR70-80b has already been spent. Pellet plant and CRM facility at KPO are
expected to be commissioned earlier in 1HFY23.
The management has guided at an increase in India EBITDA margin by INR4,000-
5,000/t (INR6,000-7,000/t increase in realization offset by an INR2,000/t rise in
cost) and Europe spreads by EUR70/t in the Netherlands and GBP40/t in the UK
in 1QFY22.
The management has guided at incremental volumes of 1mt each in
India/Europe (17.3mt/8.8mt in FY21).
Capex guidance for FY22 stands at INR110b, of which INR75b is for its India
operations.
Valuation and view
With captive iron ore availability, TATA’s Indian operations are a play on steel
prices. Given the prevailing higher prices, we expect margin to be strong. We
estimate 1QFY22 EBITDA at INR175b (+23% QoQ), with standalone EBITDA/t of
INR33,370/t (record high).
While TSE’s EBITDA should be strong in FY22E, sustenance would be key to
meeting cash outflow requirements (capex, debt, and interest).
Deleveraging should remain strong, despite the resumption of growth capex.
We expect net debt to decline by a further INR188b in FY22E to INR638b.
We arrive at our TP of INR1,205/share, based on FY23E EV/EBITDA of 5x/4x for
its India/Europe operations. Our TP implies EV/capacity of USD906/t, a 30%
premium to its past five-year average of USD696/t, which prices in deleveraging
from the upcycle. We therefore remain
Neutral.
Consolidated quarterly performance
(INR b)
Y/E March
FY20
FY21
FY20
FY21
4Q Variance
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
FY21E
(%)
Net Sales
359.5 345.8 355.2 337.7 242.9 371.5
419.0 499.8 1,398.2 1,562.9 496.4
1
Change (YoY %)
-5.0
-20.6
-13.8
-20.4
-32.4
7.4
18.0
48.0
-11.3
11.8
47.0
EBITDA
53.8
38.2
36.2
46.5
5.1
61.1
95.7 141.8 174.6
305.0 146.6
-3
Change (YoY %)
-16.9
-57.2
-46.2
-38.2
-90.6
60.0
164.3 205.2
-40.6
74.7 215.5
-5
(% of Net Sales)
15.0
11.0
10.2
13.8
2.1
16.4
22.8
28.4
12.5
19.5
29.5
EBITDA (USD/t)
122
83
70
100
14
111
181
248
93
156
279
-11
Interest
18.1
18.7
19.3
19.3
20.0
19.4
17.9
18.7
75.3
76.1
16.8
11
Depreciation
20.8
21.3
20.2
22.2
21.1
22.6
23.4
23.9
84.5
92.3
23.1
3
Other Income
2.5
1.8
0.9
13.2
1.9
2.2
2.2
2.7
18.4
9.0
2.3
20
PBT (before EO Inc.)
17.4
0.0
-2.4
18.1
-34.1
21.3
56.6 102.0
33.3
145.6 108.9
-6
EO Income (exp.)
0.2
-0.3
-3.3
-34.1
0.6
0.4
-1.5
-9.9
-37.5
-10.4
PBT (after EO Inc.)
17.5
-0.3
-5.7
-15.9
-33.5
21.7
55.0
92.1
-4.3
135.2 108.9
-15
Total Tax
11.2
-40.5
6.2
-2.6
12.7
6.1
15.8
21.9
-25.7
56.6
31.1
Tax (%)
64.6 -88,428
-263
-14.5
-37.3
28.8
28.0
21.5
-77.2
39
28.5
Reported PAT
6.3
40.2
-11.9
-13.3
-46.2
15.6
39.2
70.1
21.4
78.5
77.9
-10
Minority Interests
-0.1
-1.0
-1.4
-1.4
-2.4
0.9
3.1
5.2
-3.8
7.0
2.0
159
Share of asso. PAT
0.5
0.2
0.2
0.9
0.2
0.7
0.9
1.5
1.9
3.3
0.8
86
Adj. PAT (after MI and asso.)
6.8
-0.5
-7.0
13.8
-44.3
15.0
38.5
76.4
10.4
82.6
76.7
0
Change (YoY %)
-70.5
NA
NA
NA
NA
NA -649.7 453.2
-89.8
696.2 455.6
*FY21 sum of 4Q is not equal to FY21 full year due to non-availability of SEA financials for 1HFY21
FY20 sum of 4Qs adj PAT not equal to full year adj PAT due to dividend of hybrid securities
7 May 2021
2
 Motilal Oswal Financial Services
Tata Steel
Standalone quarterly performance
Y/E March
1Q
Net Sales
160.9
EBITDA
39.6
(% of Net Sales)
24.6
Spreads
37,790
Conv. Cost
24,631
EBITDA (INR/t)
13,159
EBITDA (USD/t)
189
Interest
7.2
Depreciation
9.7
Other Income
1.8
PBT (before EO Inc.)
24.4
EO Income (exp.)
-0.4
PBT (after EO Inc.)
24.0
Total Tax
8.6
Tax (%)
36.0
Reported PAT
15.4
Adjusted PAT
15.8
(INR b)
Variance
(%)
5
6
1
6
7
6
6
11
3
25
6
20
5
24
6
FY20
FY21
2Q
3Q
4Q
1Q
2Q
3Q
4Q
148.7 152.6 142.1
93.4 163.6 179.7 212.0
34.8
37.8
36.5
12.5
46.2
67.0
91.9
23.4
24.8
25.7
13.4
28.3
37.3
43.3
33,938 28,374 37,298 32,181 31,167 40,337 51,228
22,235 17,354 24,760 26,241 18,285 20,302 23,429
11,703 11,020 12,538 5,940 12,882 20,035 27,800
166
155
176
78
173
271
381
7.2
7.8
8.0
9.1
8.6
8.0
8.3
9.7
9.8
10.0
9.7
10.1
9.7
10.4
1.0
0.5
0.7
1.2
1.9
1.4
1.9
18.9
20.7
19.1
-5.1
29.5
50.7
75.1
0.0
3.5
-20.1
20.6
-0.1
-2.3
9.5
18.9
24.1
-1.0
15.5
29.4
48.5
84.6
-19.5
6.1
3.4
3.6
7.4
12.3
18.6
-103.2
25.3 -356.5
23.2
25.0
25.4
22.0
38.4
18.0
-4.4
11.9
22.0
36.1
65.9
14.1
14.5
13.2
-3.9
22.1
38.4
56.4
FY20
604.4
148.6
24.6
34,124
22,058
12,066
171
30.3
39.2
4.0
83.1
-17.0
66.1
-1.3
-2.0
67.4
57.6
FY21
648.7
217.7
33.6
39,423
21,566
17,858
240
33.9
39.9
6.4
150.2
27.7
178.0
41.9
23.5
136.1
108.3
4Q
FY21E
201.7
87
43.1
48,268
21,951
26,317
361
7.5
10.1
1.5
70.7
70.7
17.7
25.0
53.0
53.0
Quarterly performance of subsidiaries
Y/E March
Sales (’000 tonne)
Europe
SEA
Bhushan
Sponge Iron
Change (YoY %)
Average NSR (USD/t)
Europe (USD/t)
SEA (USD/t)
Bhushan (INR/t)
Sponge Iron (INR/t)
Net Sales
Change YoY (%)
EBITDA
As a percentage of Net Sales
Europe
SEA
Bhushan
Sponge Iron
Other India
Others
Interest
Depreciation
Other Income
PBT (after EO Inc.)
Total Tax
Tax (%)
Reported PAT
Minority Interest
Adj. PAT (after MI and asso.)
Change (YoY %)
1Q
3,333
2,260
4Q
4,619 14,363 15,588
2,470
9,290
8,780
610
2,210
860 1,040 1,260
980
694 1,280 1,149 1,193
1,100
4,140
4,316
93
118
162
140
117
184
166
173
172
513
639
-6.9 -16.2
-3.4
-8.7 -17.4
14.2
-8.2
8.8
28.7
-8.9
8.5
857
787
733
765
715
687
823
854
783
831
1,033.1
922
871
826
798
762
802
904
904
958
853
860
681
584
50,381 43,795 39,985 43,609 38,862 43,120 51,185 61,367 43,959 49,626 58,630
75,806 65,914 61,686 72,021 55,821 64,448 82,179 89,927 68,039 74,333 91,923
198.6 197.1 202.6 195.6 149.5 207.9 216.3 287.7
294.7
794
914
-7.3 -23.1 -15.8 -16.0 -24.7
5.5
6.8
50.7
47.1
-8.8
15.2
14.2
3.4
-1.6
10.0
-7.5
14.9
27.6
59.7
50.0
26.0
87.4
7.2
1.7
-0.8
5.1
-5.0
7.1
12.8
20.3
17.4
3.3
9.6
0.6
1.6
-9.6
0.6
-6.3
-4.6
-7.2
31.3
11.9
-6.6
-6.2
3.0
0
7.9
5.3
2.8
7.7
1.5
11.1
16.3
20.5
25.7
23.7
54.5
0.6
-0.4
0.4
1.3
0.1
1.8
4.1
5.9
5.0
1.8
11.0
2.0
1.6
2.2
3.0
0.4
2.6
3.1
2.0
4.2
8.8
10.3
3.2
-4.7
2.6
-2.8
-3.2
4.0
11.4
0.2
-1.7
11.0
10.8
11.5
11.5
11.2
10.9
10.8
9.8
9.3
10.4
45.0
42.1
11.2
11.6
10.4
12.2
11.4
12.6
13.0
13.0
13.5
45.3
52.5
0.7
0.8
0.4
12.4
0.7
0.4
0.7
0.7
0.8
14.4
2.6
-6.5 -19.2 -29.8 -15.0 -49.1
-7.7
6.3
38.2
7.5
-70.4
-42.8
2.6 -21.0
0.1
-6.0
9.1
-1.2
3.4
13.4
3.3
-24.4
14.7
-40.0 109.6
-0.3
40.4 -18.6
16.0
54.4
35.0
44.3
34.6
-34.4
-9.1
1.8 -29.9
-8.9 -58.2
-6.4
2.9
24.8
4.2
-46.0
-57.5
-0.1
-1.0
-1.4
-1.4
-2.4
0.9
3.1
2.0
2.0
-3.9
3.7
-9.0
3.4 -21.6
7.4 -35.7
-7.1
-0.1
23.6
22.4
-21.6
-23.0
78.1 -53.2 -1655.7
67.0 295.1 -310.4 -99.6 203.4 -377.2
220.5
6.5
*Sum of 4Q is not equal to FY21 full year due to non-availability of SEA financials for 1HFY21
FY20
2Q
3Q
3,558 3,882
2,290 2,350
4Q
3,590
2,390
1Q
2,754
1,940
FY21
2Q
3Q
4,063 3,562
2,260 2,110
FY20
FY21
(INR b)
4Q Variance
FY21E (%)
3,907
18
2,490
-1
8
-1
-17
5
-2
-2
-16
-62
25
-15
17
4
-80
-83
-5
7 May 2021
3
 Motilal Oswal Financial Services
Tata Steel
Highlights from the management commentary
Outlook
The Steel industry is seeing structural changes due to focus on carbon footprint
reduction, which has led to China discouraging exports by way of removing
rebates. Japan is also looking to cut steel capacity and reduce exports. Focus on
carbon footprint reduction would make steel a domestic play and reduce focus
on exports for countries like China and Japan.
Demand:
Global steel demand is expected to increase by 5.8% in CY21 on the back of an
economic recovery and progressive COVID-19 vaccination across regions.
India steel demand continues to be buoyant, while a demand recovery in the EU
and the UK is expected to be healthy, driven by a recovery in all steel consuming
sectors, especially Automotive.
Improvement in steel demand in Europe is outpacing supply, leading to strong
increase in prices and spot spreads.
The management doesn’t see any material impact from a second COVID wave
on volumes as it has sufficient export orders to offset any domestic weakness.
Pricing:
The management expects Asia steel prices to remain buoyant, amid a strong
demand recovery, pollution control led production curbs in China, and elevated
raw material prices. Strong international steel prices, robust demand, and
supply tightness should support steel prices in India and Europe.
It highlighted that volumes at most European mills are already booked, which is
leading to a tightness in the spot market and a rise in prices. This is further
supported by higher steel prices in the US.
Raw material:
Seaborne iron ore prices are expected to remain elevated due to
increased demand and continued tightness in supply. However, coking coal
prices should remain soft.
Guidance
The management has guided at incremental volumes of 1mt each in
India/Europe (17.3mt/8.8mt in FY21).
Capex guidance for FY22 stands at INR110b, of which INR75b is for its India
operations.
The management guided at a QoQ improvement of INR6,000-7,000/t in
realization in 1QFY22, whereas costs are expected to rise by INR2,000/t.
Operational highlights
Overall sales from its India operations grew 16% YoY (flat QoQ) to 4.7mt in
4QFY21. Production grew marginally YoY to 4.75mt (+2% QoQ), the highest ever
quarterly production. The share of exports stood at 11% of volumes (11% in
3QFY21).
Domestic volumes were higher by 22% YoY at 4.17mt (flat QoQ). This was
supported by a YoY growth across key business verticals:
a) Auto – 0.78mt, up 13% QoQ/57% YoY,
b) Branded and Retail – 1.45mt, up 3% QoQ/23% YoY, and
c) Industrial Products and Projects – 1.59mt, down 6% QoQ, but up 11% YoY.
7 May 2021
4
 Motilal Oswal Financial Services
Tata Steel
Tata Steel’s standalone
sales stood at 3.31mt, down 1% QoQ, but up 14% YoY.
Tata Steel BSL’s
sales improved ~4% QoQ (22% YoY) to 1.19mt. Exports stood at
16% of overall volumes v/s 18% in 3QFY21.
TSE’s
sales rose ~18% QoQ (~4% YoY) to 2.49mt (in line) on improved demand
and seasonality. Production improved by ~2% QoQ to 2.65mt (flat YoY).
Europe operations: Spreads to improve on better prices
Financial performance:
TSE posted an EBITDA of INR11.9b (est. INR31.3b) as
against a loss of INR7.2b in 3QFY21. EBITDA/t stood at USD66/t (est. USD170/t).
The miss on EBITDA was led by one-off carbon credit provision of GBP69m
(USD39/t) and a miss on realization as only one-fourth of the QoQ increase in EU
steel prices was reflected in TSE. This was due to contracts fixed earlier at lower
prices.
The increase in spot prices in Europe would not entirely flow in 1QFY22 due to
lag effect and half-yearly and annually priced contracts. Realization would
continue to improve till 3QFY22 as contracts are reset and re-negotiated.
Sell-buy spreads for TSE is guided to improve (QoQ) by EUR70/t to EUR285/t in
the Netherlands and by GBP40/t to GBP250/t in 1QFY22.
The management does not expect carbon credit purchases to recur in FY22 as it
had monetized its credits in 1QFY21 to ease off liquidity.
The carbon credit cost would be ~GBP20m per quarter in FY22.
The company has levied a carbon surcharge of GBP12/t on its steel sales. The
same has been accepted by its customers.
In order to reduce its carbon footprint in the Netherlands, TSE is planning to
capture carbon and storing it.
The management informed that carbon credit allowance may be done away by
CY25. However, a carbon border (adjustment) tax is being planned on imports to
compensate mills for carbon costs.
Its focus is on separating the UK and the Netherlands business. The company is
open to sell its European operations provided there is a deal on the table.
Its European operations remained cash neutral in FY21 and would continue to
meet its own requirements.
Other financial highlights
Tata Steel BSL had earlier reported an EBITDA of INR25.7b (est. INR20.5b), up
58% QoQ, on the back of higher (+20% QoQ) realization at INR61,367/t. EBITDA
stood at INR21,510/t, up 52% QoQ and 15% higher than our estimate of
INR18,678.
Tata Steel Long Product (TSLP) reported a strong margin for 4QFY21, resulting in
an EBITDA of INR5b, up 21% QoQ.
Southeast Asia (SEA) operations were reclassified as continued operations from
‘assets held for sale’. It reported an EBITDA of INR2.95b, up 159% QoQ, and
EBITDA/t of USD63 v/s USD29 in 3QFY21. Sales volumes stood at 0.64mt, up 8%
QoQ.
Other Indian subsidiaries reported an EBITDA of INR4.2b, up 37% QoQ.
Cash flows:
Consolidated OCF generation stood at INR379b (adjusted for pre-
export advance of INR63.8b). Working capital cash flow release in FY21 was
7 May 2021
5
 Motilal Oswal Financial Services
Tata Steel
INR101.1b. Capex stood at INR69.7b in FY21 (v/s INR103.9b in FY20). FCF
generation stood at INR309b in FY21 v/s INR97.7b in FY20.
Capex
stood at INR23.8b in 4QFY21 (INR69.7b in FY21). The company has
restarted expansion work on the 5mtpa KPO-II, which would be commissioned
in 2HFY24. Work on the pellet plant (40% completed) and CRM complex at Tata
Steel Kalinganagar is also going on. The company expects to commission the
pellet plant and CRM facility in the next 12-18 months. The 5mtpa expansion
would entail a capex of INR160b for the HRC facility, INR20b for raw material
facilities, and INR55b for the 2.2mtpa CRM complex. Of this, INR70-80b has
already been spent.
Consolidated net
debt
reduced by INR245b to INR826b in FY21. We have
considered an export advance of INR63.8 as part of the debt. The debt reduction
was supported by higher EBITDA, working capital release (INR101.1b), and
proceeds from the final call on partly paid-up shares (INR32.4b).
The management is targeting a net debt/EBITDA ratio of 2.5x on a sustainable
basis.
Capital allocation and growth strategy
Deleveraging remains the management’s key focus.
The company is willing to look for inorganic expansion in its Long Steel business.
In the Flat segment, it will look at brownfield expansion as existing facilities at
Jamshedpur/Kalinganagar/Angul locations can be increased up to
14mt/16mt/10mt from 10mt/3mt (8mt post KPO-II)/5mt currently.
The company would continue to operate its overseas assets. However, it would
pursue growth only in its India business.
Other
Shareholders have approved the merger of Tata Steel and Tata Steel BSL and
filed a joint petition for the merger with effect from 1
st
Apr’19.
The company has set-off most of the accumulated losses in Tata Steel BSL and
there is no material amount left to set-off now.
It has declared a dividend of INR25/share, much higher than the usual level of
INR10-13/share.
The company has reclassified its SEA operations under continuing operations.
Valuation and view
Play on steel prices:
Robust integrated domestic operations allow TATA to reap the
benefits of higher prices, thereby making it a play on steel prices. Every INR1,000/t
increase in steel prices improves TATA’s FY23E EBITDA by 4.4%. We expect steel
prices and margin to stay strong on tightening demand-supply in Asia.
Volume growth to be muted over FY21-24E:
Due to lack of growth in TATA’s
capacity, volumes are expected to remain flat over the next three years. However,
the outlook post FY24E is positive with the expected commissioning of 5mtpa
Kalinganagar (KPO) Phase II expansion.
Outlook for Europe improving, but UK operations remain challenging:
With
improved spreads, the outlook for TSE has improved. However, given the greater
7 May 2021
6
 Motilal Oswal Financial Services
Tata Steel
cost structure of its UK operations and higher sustenance capex in Europe, it
remains exposed to the vagaries of a pricing cycle.
Decline in net debt a positive:
TATA reduced its net debt by INR245b to INR826b in
FY21, the lowest since FY19. We expect net debt to decline by a further INR293b
(INR245/share) to INR533b over FY21-23E.
Valuation:
We arrive at our TP of INR1,205/share, based on FY23E EV/EBITDA of
5x/4x for its India/Europe operations. Our TP implies EV/capacity of USD906/t, a
30% premium to its past five-year average of USD696/t, which prices in deleveraging
from the upcycle. We therefore remain
Neutral.
Exhibit 1: SoTP valuation
Y/E March (INR b)
Standalone
EBITDA per tonne (USD)
EBITDA per tonne (INR)
Sales (mt)
EBITDA – India
Target EBITDA multiple
Standalone EV
–
(a)
INR/share
Subsidiaries
EBITDA – India
Target EBITDA multiple
EBITDA – Europe
Target EBITDA multiple
EV (subsidiaries) – (b)
INR/share
Target EV (c=a+b)
Net Debt (d)
INR/share
Total equity value (c-d+e)
Target Price (INR/share)
FY18
201
12,976
12.2
158
FY19
232
16,180
12.7
206
FY20
171
12,066
12.3
149
FY21
240
17,858
12.3
220
FY22E
374
27,643
12.8
354
FY23E
289
21,665
12.8
277
5
1,387
1,158
101
5
20
4
584
488
1,970
533
445
1,443
1,205
Source: MOFSL
28
38
34
54
33
-7
92
-6
137
69
713
596
972
812
1,071
894
827
690
638
533
Spot steel price implying a significant upside
Every INR1,000/t of higher steel prices improves TATA’s FY23E EBITDA/EPS by
4%/7%. At the same time, valuation rises by 7%.
If we assume spot steel prices to sustain in FY23E, it would imply an upside of
52%/81% to our base case EBITDA/valuation of INR1,205/share.
7 May 2021
7
 Motilal Oswal Financial Services
Tata Steel
Exhibit 2: TATA’s sensitivity to steel prices
INR b
Standalone realization/t (INR)
Standalone EBITDA/t (INR)
Consolidated Revenue
Consolidated EBITDA
Consolidated PAT
Net debt
TP (5x FY23E EV/EBITDA)
Current estimate
FY22E
FY23E
64,971
59,906
27,643
21,665
2,060
560
305
638
1,870
398
191
533
1,205
Sensitivity to INR1,000/t
FY23E
Change (%)
60,906
1.7
22,665
4.6
1,888
416
204
521
1,288
0.9
4.4
6.8
-2.2
6.9
At spot prices
FY23E
Change (%)
71,406
19.2
33,165
53.1
2,076
604
343
395
2,179
11.0
51.7
79.7
-25.8
80.8
Source: MOFSL
Exhibit 3: Change in estimate
INR b
Standalone
Volumes (mt)
Realization (INR/t)
EBITDA (INR/t)
EBITDA
Tata Steel BSL
Volumes
Realization (INR/t)
EBITDA (INR/t)
EBITDA
Tata Steel Europe
Volumes (mt)
EBITDA (USD/t)
EBITDA (INR m)
Consolidated
Revenue
EBITDA
PAT
Target Price (INR/share)
Revised
FY22E
12.8
64,971
27,643
354
4.5
61,422
20,822
94
9.6
98
69
2,060
560
305
FY23E
12.8
59,906
21,665
277
4.8
55,506
13,164
63
9.6
29
20
1,870
398
191
1,205
Old
FY22E
12.8
52,989
16,496
211
4.5
50,013
10,669
48
9.3
50
35
1,630
316
123
FY23E
12.8
51,925
15,615
200
4.8
50,513
10,047
48
9.3
34
24
1,598
293
112
891
Change (%)
FY22E
0.0
22.6
67.6
67.6
0.0
22.8
95.2
95.2
3.2
95
98
26.4
77.4
146.9
FY23E
0.0
15.4
38.7
38.7
0.0
9.9
31.0
31.0
3.2
-16
-16
17.1
35.7
71.1
35.2
Source: MOFSL
7 May 2021
8
 Motilal Oswal Financial Services
Tata Steel
Story in charts
Exhibit 4: Standalone volumes to remain stagnant
Standalone Sales (mt)
12.7
12.2
12.3
12.3
16,180
11.0
10,818
12,976
12,066
17,858
Exhibit 5: Standalone EBITDA/t to improve further
Standalone EBITDA/t
12.8
12.8
27,643
21,665
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 6: Profitability in Europe to improve in FY22E
EU - EBITDA/t (USD)
70
80
59
29
98
Exhibit 7: FCF post-interest to remain strong
FCF - INR b
303
263
167
88
1
-19
21
FY17
FY18
FY19
-10
FY20
-9
FY21E
FY22E
FY23E
FY17
FY18
FY19
FY20
FY21E
FY22E
FY23E
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 8: Net debt/EBITDA ratio to fall below 1.5x
Net DEBT (INR b)
EBITDA (INR b)
Exhibit 9: Returns ratios to improve
40.0
30.0
RoE (%)
RoCE (%)
Net debt/EBITDA (x)
4.4
3.3
3.3
6.1
2.7
1.1
1.3
20.0
10.0
0.0
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY17
FY18
FY19
FY20
FY21E FY22E FY23E
Source: Company, MOFSL
Source: Company, MOFSL
7 May 2021
9
 Motilal Oswal Financial Services
Tata Steel
Financials and valuations
Consolidated Income Statement
Y/E March
Net Sales
Change (%)
EBITDA
% of Net Sales
Depn. and Amortization
EBIT
Finance cost
Other income
PBT before EO
EO income
PBT after EO
Tax
Rate (%)
Reported PAT
Minority interest P/L
Share of asso. PAT
PAT (After MI and asso.)
Div. on Pref./Hybrid Sec.
Adjusted PAT
Change (%)
FY18
1,322
17.7
219
16.6
60
159
55
9
113
96
209
34
16
175
43
2
134
3
80
116
FY19
1,577
19.3
294
18.6
73
220
77
14
158
-1
157
67
43
90
-11
2
103
3
101
27
FY20
1,398
-11.3
175
12.5
84
90
75
18
33
-38
-4
-26
603
21
-4
2
27
3
10
-90
FY21
1,563
11.8
305
19.5
92
213
76
9
146
-10
135
57
42
79
7
3
75
3
83
696
FY22E
2,060
31.8
560
27.2
96
464
55
11
420
0
420
109
26
311
8
2.579
306
1
305
269
(INR b)
FY23E
1,870
-9.2
398
21.3
97
301
45
11
267
0
267
69
26
197
8
2.579
192
1
191
-37
Consolidated Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Interest
Total Loans
Deferred Tax Liability
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Investments
Goodwill on consolidation
Curr. Assets
Inventory
Account Receivables
Cash and liquid investment
Others
Curr. Liability and Prov.
Account Payables
Provisions and Others
Net Current Assets
Appl. of Funds
FY18
11
575
586
9
942
95
1,632
1,399
479
920
166
30
41
929
283
124
228
294
(INR b)
FY19
11
655
667
24
1,031
115
1,836
1,730
526
1,204
186
32
40
863
317
118
59
370
FY20
11
702
713
26
1,186
78
2,003
1,915
610
1,305
195
29
41
921
311
79
115
417
455
204
251
475
1,632
490
217
273
373
1,836
487
214
273
434
2,003
FY21
12
723
735
33
957
75
1,799
2,017
703
1,314
190
35
43
855
333
95
130
297
639
260
379
217
1,799
FY22E
12
941
953
41
767
94
1,854
2,108
798
1,310
209
37
43
961
423
113
128
297
706
327
379
255
1,854
FY23E
12
1,061
1,073
49
677
104
1,902
2,194
896
1,299
243
40
43
963
410
113
144
297
686
307
379
277
1,902
7 May 2021
10
 Motilal Oswal Financial Services
Tata Steel
Financials and valuations
Consolidated Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share (excluding goodwill)
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
EBITDA Margin (%)
Net Profit Margin (%)
RoE
RoCE (pre-tax)
RoIC (pre-tax)
Working Capital Ratios
Fixed Asset Turnover (x)
Asset Turnover (x)
Debtor (Days)
Inventory (Days)
Payables (Days)
Working Capital T/O (Days)
Leverage Ratio (x)
Current Ratio
Interest Coverage Ratio
Net Debt/Equity
E: MOFSL estimates
FY18
69.5
121.6
476.0
8.0
11.6
15.8
9.0
2.3
1.5
9.0
0.7
16.6
6.0
17.2
11.6
14.6
1.4
0.8
34
78
56
56
2.0
2.9
1.3
FY19
88.6
152.7
547.2
10.0
11.3
12.4
7.2
2.0
1.4
7.6
0.9
18.6
6.4
17.3
13.7
15.9
1.3
0.9
27
73
50
50
1.8
2.9
1.6
FY20
9.1
82.8
587.3
10.0
110.4
121.4
13.3
1.9
1.7
13.3
0.9
12.5
0.7
1.6
5.8
5.6
1.1
0.7
21
81
56
46
1.9
1.2
1.6
FY21
69.0
146.1
577.1
25.0
36.2
15.9
7.5
1.9
1.4
7.0
2.3
19.5
5.3
11.8
11.8
13.7
1.2
0.9
22
78
61
39
1.3
2.8
1.2
FY22E
254.5
334.3
759.8
60.0
23.6
4.3
3.3
1.4
0.9
3.5
5.5
27.2
14.8
38.1
26.2
31.8
1.6
1.1
20
75
58
37
1.4
8.5
0.7
FY23E
159.5
240.7
859.5
50.0
31.3
6.9
4.6
1.3
1.0
4.6
4.5
21.3
10.2
19.7
16.7
20.4
1.4
1.0
22
80
60
42
1.4
6.7
0.5
Consolidated Cash Flow Statement
Y/E March
EBITDA
Reconciliation income (loss)
(Inc.)/Dec. in Wkg. Cap.
Tax Paid
CF from Op. Activity
(Inc.)/Dec. in FA + CWIP
Free Cash Flow to Firm
(Pur.)/Sale of Non-cur. Invest.
Acquisition in subsidiaries
Int. and Dividend Income
Others
CF from Inv. Activity
Equity raised/(repaid)
Debt raised/(repaid)
Dividend (incl. tax)
Interest and equiv. paid
CF from Fin. Activity
(Inc.)/Dec. in Cash
Add: opening Balance
Closing Balance
FY18
219
-17
-43
-29
130
-75
55
-9
-2
3
10
-73
91
41
-12
-54
66
123
106
228
FY19
294
-15
26
-51
253
-91
162
4
-351
3
18
-416
0
82
-14
-74
-7
-170
228
59
FY20
175
6
42
-21
202
-104
98
4
-41
4
8
-129
2
76
-18
-77
-17
56
59
115
FY21
305
-20
165
-7
443
-70
373
4
1
5
3
-57
32
-321
-12
-71
-371
15
115
130
FY22E
560
0
-40
-91
429
-110
319
0
0
11
0
-99
0
-190
-86
-56
-332
-2
130
128
(INR b)
FY23E
398
0
-6
-59
332
-120
212
0
0
11
0
-109
0
-90
-72
-46
-207
16
128
144
7 May 2021
11
 Motilal Oswal Financial Services
Tata Steel
NOTES
7 May 2021
12
 Motilal Oswal Financial Services
Tata Steel
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
< - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30
days take appropriate measures to make the recommendation consistent with the investment rating legend.
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Specific Disclosures
1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOFSL has not received any compensation or other benefits from third party in connection with the research report
10 MOFSL has not engaged in market making activity for the subject company
********************************************************************************************************************************
The associates of MOFSL may have:
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financial interest in the subject company
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actual/beneficial ownership of 1% or more securities in the subject company
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received compensation/other benefits from the subject company in the past 12 months
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 Motilal Oswal Financial Services
Tata Steel
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other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the specific
recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the associates of MOFSL even though there
might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
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acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
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be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies)
discussed herein or act as an advisor or lender/borrower to such company(ies)
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received compensation from the subject company in the past 12 months for investment banking / merchant banking / brokerage services or from other than said services.
The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not consider
demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from clients which are not
considered in above disclosures.
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research
analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
Terms & Conditions:
This report has been prepared by MOFSL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be
altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of MOFSL. The report is
based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from
publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made
as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not
constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers
simultaneously, not all customers may receive this report at the same time. MOFSL will not treat recipients as customers by virtue of their receiving this report.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or
in whole, to any other person or to the media or reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be
used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal,
accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this
report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This
may not be taken in substitution for the exercise of independent judgment by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at
an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to
determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures,
options, another derivative products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied,
is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is
provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The
Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and
the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform
or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a
separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that is
already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the
views expressed therein. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or
published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any
locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or
licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose
possession this document may come are required to inform themselves of and to observe such restriction. Neither the Firm, not its directors, employees, agents or representatives shall be
liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not
to hold MOFSL or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses,
costs, damages,
expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.CIN
no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai-
400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI:
ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration
No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth Management Ltd. (MOWML): PMS (Registration No.:
INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond,
NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered
through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk
Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk,
read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law
Tribunal, Mumbai Bench.
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