Tata Steel
BSE SENSEX
31,847
S&P CNX
9,989
9 October 2017
Update
| Sector: Metals
CMP: INR697
TP: INR665(-5%)
Neutral
Site visit to Jamshedpur and Kalinganagar
A benchmark in operational excellence, sustainability and CSR
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INRm)/Vol m
Free float (%)
Financials Snapshot (INR b)
Y/E Mar
Net Sales
EBITDA
PAT
EPS (INR)
Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2017 2018E 2019E
1,123
170
37
37.9
394.2
330
15.7
9.4
18.4
2.1
1,255 1,254
211
65
66.9
76.5
373
19.1
11.6
10.4
1.9
202
62
63.4
-5.3
426
15.9
10.3
11.0
1.6
TATA IN
971
704 / 366
6/36/58
677.1
10.4
3059
68.7
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-17 Mar-17 Jun-16
31.4
30.3
13.7
24.6
31.4
30.6
14.1
23.9
31.4
27.2
13.3
28.2
FII Includes depository receipts
Stock Performance (1-year)
Tata Steel
Sensex - Rebased
690
580
470
360
250
We visited Tata Steel’s (TATA) flagship, highly profitable 10mtpa steel plant at
Jamshedpur, Jharkhand (JSR), recently commissioned new greenfield 3mtpa steel
plant at Kalinganagar, Odisha (KPO) and also met top management during 3-6
October 2017. Key takeaways:
After plugging the cash leakage at Tata Steel Europe (TSE), TATA is now looking
to double its capacity to 26mtpa in India through both organic and inorganic
routes.
TATA has a lion’s share in the most lucrative auto segment at 44%. Autos
comprised 19% of its product mix in FY17. The new hot strip mill (HSM) at KPO
can produce all sizes, grade in tight tolerances, which are required by the highly
demanding auto customers.
TATA has continuously worked to create various brands and retail supply chain.
Branded products now comprise of 50% of JSR’s revenue.
JSR has 10mtpa capacity in a compact area of 1,700 acres. The blast furnaces
operate at high operating efficiencies and at the lowest coke rate of 320kg. It
has state-of-the-art downstream facilities to produce 2.3mtpa products. JSR is
expected to increase steel production by 1mt over three years through
debottlenecking.
KPO’s phase-I with 3mtpa capacity was commissioned in FY17. KPO’s area is
twice that of JSR, and it has created infrastructure for 6mtpa. There will be
material savings in infrastructure and HSM during phase-II expansion.
However, additional capex would be needed in the downstream cold rolling
mills. Management is likely to announce 3-5mtpa expansion in CY17.
TATA has been investing heavily on sustainability, driven by the vision of its
founder. JSR has invested INR25b in the past 10 years on improving the
environment. Some of the achievements in this area are:
Specific dust emission has reduced by 50% in the last four years.
Specific water consumption has reduced by 31% in the last four years.
Specific CO2 emission intensity has reduced by 27%.
TATA has been responsibly discharging its duties toward the society. Some of
its initiatives have helped in reducing infant mortality by 39%, making 1,052
villages child-labor-free, building 30 schools in rural Odisha, etc.
TATA’s expansion projects will increase its Indian capacities by 4-6mtpa to 17-
19mtpa over the next 3-4 years. It is also evaluating value-accretive inorganic
opportunities, which are arising under the Indian bankruptcy code.
We believe that TATA has finally achieved a major milestone by plugging the
cash flow leakages at TSE. The operating environment too is improving on
consolidation and anti-dumping actions against cheaper imports. The Indian
business is benefitting from the strong international market and retail reach.
TATA will pursue growth instead of de-leveraging, as the new projects in India
are attractive. Both Odisha and Jharkhand may raise additional demand toward
past iron ore mining. We value the stock at INR665/share based on SOTP.
Maintain
Neutral.
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.
Sanjay Jain-Research analyst
(SanjayJain@MotilalOswal.com); +91 22 6129 1523
Dhruv Muchhal-Research analyst
(Dhruv.Muchhal@MotilalOswal.com); +91 22 6129 1549