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

Tata Steel
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 at JSR during 3-6
October 2017. After plugging the cash leakage at Tata Steel Europe (TSE), TATA is
now planning to double its capacity in India through both organic and inorganic
routes.
Exhibit 1: Capacity (mtpa) growth milestones
Source: Company
TATA commands a lion’s share in the most lucrative auto segment at 44%. Autos
comprised 19% of its product mix in FY17.
Exhibit 2: Preferred supplier in chosen segments; commands premium pricing
Source: Company
9 October 2017
2

Tata Steel
Exhibit 3: Branded products, retail & solutions: De-commoditization of steel
Source: Company
Exhibit 4: Value creation through downstream facilities
Source: Company
Visit to 9.7mtpa Jamshedpur plant: A benchmark for industry on operating
parameters, sustainability and CSR
Steel production started more than 100 years ago with just 100kt of initial capacity
at JSR. It has come a long way now. Steel production capacity had increased to
9.7mtpa at JSR by FY13.
We started by visiting the iron-making blast furnaces. JSR has a total of seven blast
furnaces. G, H and I are the latest furnaces, with capacities of 1.8, 2.5 and 3.2mtpa,
respectively, while the other four furnaces have combined capacity of ~3.4mtpa.
Thus, total hot metal capacity is ~11mtpa. We visited the latest and largest furnace I,
9 October 2017
3

Tata Steel
which is operating at very high level of productivity of 2.8tonne per day of each
cubic meter of useful furnace volume. Coke rate is very low at 320kg per ton of hot
metal production. The coke rate at JSR has come down steadily in the last three
years on an increase in pellet feed and PCI, and process optimization. Pellet feed‘s
share has increased to 35% from nil three years ago.
Exhibit 5: Avg. coke rate at JSR and KPO
Exhibit 6: Average PCI at JSR and KPO
Source: Company
Source: Company
Thereafter, we visited the 2.4mtpa thin slab cum rolling mill (TSCR), which was
commissioned in FY13. Thin slabs are directly taken to the tunnel type of reheating
furnaces, and then fed directly to tandem rolling for production of HRC. There is no
intermediate storage of slabs. This process is more energy-efficient because direct
reheating of slabs requires less energy. TSCR has overachieved capacity utilization
and produced 2.7mtpa in FY17.
After TSCR, we visited the 2mtpa state-of-the-art pickling line cum cold rolling mill
(PLTCM). This mill has been expanded many times over a period of time. Some of
the output of CRC is sent for batch annealing, while full hard material is either sent
to 600ktpa JCAPCPL for application in auto or for other commercial applications.
JCAPCPL is a joint venture between TATA and Nippon for the production of auto
grade CRCA sheets. This line was commissioned in 2011, and has high-end strip
inspection facilities to meet quality requirements of the automobile industry. TATA
now has a 44% share in the Indian auto market.
There is another 250ktpa cold rolling mill complex outside the main campus of JSR at
Bara. This complex has 250ktpa CRM, which supplies substrate to a 250ktpa coated
line, which was constructed in a joint venture with BlueScope. This line meets the
requirement of the construction sector. Thus, total cold rolling capacities are
2.25mtpa, which is about 22-25% of total saleable steel production at JSR.
Sustainability: Ahead of industry
TATA has been investing heavily on sustainability, while the regulations have been
catching up. The group activities in this area are driven by the vision of its founder.
“In a free enterprise, the community is not just another stakeholder in the business
but the very purpose of its existence”
– Jamsetji Tata
9 October 2017
4

Tata Steel
The company has invested INR25b over the past 10 years on improving the
environment. INR23b has been invested to reduce dust emission and INR2.11b to
conserve water.
Specific dust emission (kg/tcs) has reduced by 50% in the last four years.
Specific water consumption (m3/tcs) has reduced by 31% in the last four years.
Specific CO2 emission intensity (t CO2e/tcs) has reduced by 27%.
Exhibit 7: CO2 emission intensity at JSR
Exhibit 8: Specific energy intensity at JSR
Source: Company
Source: Company
Exhibit 9: CO2 emission intensity at JSR
Exhibit 10: Specific energy intensity at JSR
Source: Company
Source: Company
Exhibit 11: Specific fuel rate at JSR
Exhibit 12: Specific refractory consumption at JSR
Source: Company
Source: Company
We visited an Eco Park developed over the heap of slag dump to address emission
from spontaneous combustion of waste coal (in slag) that has been dumped over
more than 100 years. This is an excellent example of environment protection.
9 October 2017
5

Tata Steel
CSR strategy
TATA is guided by its strategy of improvement in societal wellbeing in Jharkhand and
Odisha, while the focus is on education, livelihood and health. TATA has taken
various initiatives, such as:
Health – MANSI project
The project is aimed at reducing the infant mortality rate and the neonatal mortality
rate in an entire block of a district, by providing improved implementation of home-
based newborn care through the existing government health machinery at village-
level in a public-private partnership. There was a reduction of 39% in infant
mortality between 2011 and 2014.
Education – 100 schools project
This project aims to improve the level of education in the government primary
schooling system through a three-tier approach:
Improving access of children to schools to ensure no child is out of school.
Enhancing learning capacity of children by improving teaching levels in schools.
Increasing governance levels in schools by activating school management
committees, which include parents of children.
Livelihoods – skill development
This program includes providing skill-based training for youth to make them
employable and also supporting them in job placement. A mix of courses is offered
through own institutes or partnerships with reputed organizations.
39% reduction in infant
mortality
1,052 villages have become
child-labor-free
Growth plan to 11mtpa
The company is planning to expand production by 1mtpa to 11mtpa at JSR. The
additional 1mtpa production is expected to be achieved through asset sweating and
debottlenecking over a period of three years. There is also a thought process to
replace four older furnaces with a single large furnace to improve productivity, but
nothing is decided yet in light of complexities of 10mtpa production in a small area
of 1,700 acres.
Visit to 3mtpa KPO: New greenfield site will facilitate unfettered
growth
Spread over twice the area
at JSR
KPO is spread over 3,400 acres, which is nearly double the area at JSR. 3mtpa phase-
1 capacity was commissioned in FY17. The plant layout and infrastructure have been
designed with 6mtpa capacity in mind. The railway siding, raw material handling
conveyors and hot strip mill have capacity to handle 6mtpa production.
KPO has India’s second largest blast furnace, with 4,330 cubic meter volume and
capacity to produce ~3-3.5mtpa hot metal. The blast furnace has achieved a coke
rate of 400-420 kg/thm and a production run-rate of 9500tpd. The iron feed
comprises less than 10% pellets, which are purchased from third parties.
Steel melt shop has two basic oxygen furnaces (BoF) for crude steel production. In
the secondary metallurgy section, it uses CAS-OB technology instead of ladle
furnaces (LF) because it is less energy-intensive. RH-degasser is still under
9 October 2017
6

Tata Steel
construction, which will help in the production of IF grade steel for outer panels in
autos.
The state-of-the-art hot strip mill has two reversible roughing stands and seven
stands in tandem finishing mill with three down coilers. The mill can produce 1.5-
25mm HRC, with width ranging from 800mm to 2,050mm, tensile strength up to
1,050 MPa and within narrow tolerance of 36-48 micron. The HSM can produce
high-end products like HS 800, DP 600/1000 and API X70/80. This mill is capable of
producing most of the grades that are required by the Indian auto industry. On
adding the reheating furnace and roll grinding capabilities, this mill can produce
6mtpa.
Exhibit 13: Hot strip mill: Superior capability to address customer requirements
Source: MOSL, Company
Environment: Best of the practices and equipment
KPO has already taken care of all the environment-related investment that has been
done over a period of time at JSR. The plant is designed to retain entire rain water.
The plant has zero discharge.
CSR
TATA has built 30 model schools in different districts in Odisha to provide good
educational infrastructure for rural children to study.
Growth plan: 3-5mtpa expansion to be announced soon
TATA is likely to finalize 3-5mtpa phase-2 expansion at KPO within the next few
months at an estimated capex of INR220b. Although the existing HSM can be
leveraged in phase-2, there will be additional investment requirement in the cold
rolling mill and processing lines.
9 October 2017
7

Tata Steel
Exhibit 14: SOTP valuation
2015
India
EBITDA per ton (USD)
EBITDA per ton (INR)
Sales (m tons)
EBITDA-India
Target EBITDA multiple
EV (India) - (a)
INR/share
TSE and other subs.
EBITDA per ton (USD)
Depreciation per ton (USD)
EBIT per ton (USD)
Sales (m tons)
EBITDA
Target EBITDA multiple
EV (TSE) - (b)
INR/share
33% equity in TSE UK ( c )
Target EV (c=a+b-c)
Net Debt (d)
INR/share
CWIP (e)
Sustenance CWIP (s)
Investments (f)
INR/share
(f1) Discount (%)
TP (c-d+e-s+f*(1-f1%))
Target Price (INR /share)
187
11,444
8.7
100,661
6.5
654,295
674
26
37
-11
17.6
-11,791
5.0
-58,953
-61
595,342
727,641
749
286,781
2016
115
7,557
9.5
73,271
6.5
476,258
490
3
29
-26
16.4
3,739
5.0
18,695
19
494,953
769,329
792
354,879
2017
161
10,818
11.0
118,760
6.5
771,937
795
56
24
32
13.0
49,005
5.0
245,024
252
1,016,960
744,767
767
157,841
2018E
179
11,742
12.3
144,617
6.5
940,009
968
2019E
171
11,485
12.8
146,833
6.5
954,414
983
78
63
25
26
53
37
13.0
13.0
66,067
53,779
6.5
6.5
429,436
349,562
442
360
29,771
27,482
1,339,674
1,276,494
744,449
712,465
766
733
123,121
134,501
55,000
55,000
3,193
3,193
3
3
20
20
665,901
646,085
685
665
Source: MOSL, Company
Exhibit 15: Metals sector valuation
Rating
Steel
Tata Steel
JSW Steel
JSPL
SAIL
Non-Ferrous
Hindalco
Nalco
Vedanta
Mining
Coal India
Hindustan Zinc
NMDC
Neutral
Buy
Buy
Sell
Buy
Neutral
Buy
Buy
Neutral
Buy
EPS
Price MCAP
(INR) (USD M) FY17E FY18E FY19E
697
258
158
57
250
80
324
281
317
121
10,347
9,510
2,208
3,582
7,874
3,162
14,673
27,162
20,452
7,342
37.9
14.8
-20.9
-6.2
16.2
3.7
15.1
14.9
19.7
10.0
66.9
21.9
-15.8
-10.6
22.0
3.8
23.9
19.8
22.2
12.4
63.4
25.7
2.0
-4.2
26.3
4.2
37.4
22.0
29.3
12.1
P/E (x)
FY18E FY19E
10.4
11.7
-10.0
-5.4
11.4
21.4
13.6
14.2
14.3
9.7
11.0
10.0
78.5
-13.5
9.5
19.2
8.7
12.8
10.8
10.0
EV/EBITDA (x)
FY18E FY19E
6.7
8.0
10.1
34.2
6.7
9.0
7.8
7.5
9.0
6.1
6.9
7.3
7.0
14.4
5.9
8.2
5.2
P/B(x)
FY18E FY19E
1.9
2.3
0.5
0.7
1.6
1.5
1.9
1.6
1.9
0.5
0.8
1.4
1.4
1.7
6.8
6.8
6.4
6.4
4.7
3.7
6.1
1.6
1.5
Source: MOSL, Company
9 October 2017
8

Tata Steel
Financials and Valuations
Income Statement
Y/E Mar
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Min. Int. & Assoc. Share
Reported PAT
Adjusted PAT
Change (%)
2013
1,347,115
1.4
123,212
9.1
55,753
67,459
39,681
4,792
-73,899
-41,330
32,294
-78.1
-2,145
-72,375
1,524
-91.6
2014
1,486,136
10.3
164,110
11.0
58,412
105,698
43,368
5,168
-276
67,221
30,582
45.5
-80
34,203
34,479
2,162.2
2015
1,395,037
-6.1
127,758
9.2
59,436
68,322
48,478
7,962
-43,980
-16,175
23,380
-144.5
-450
-41,204
2,776
-91.9
2016
1,171,516
-16.0
75,857
6.5
50,818
25,038
41,286
39,257
-39,749
-16,740
15,050
-89.9
-1,089
-32,292
7,457
168.6
2017
1,122,994
-4.1
170,078
15.1
56,729
113,349
50,722
5,275
-81,884
-13,982
27,780
-198.7
687
-45,034
36,851
394.2
2018E
1,255,160
11.8
210,684
16.8
59,819
150,865
53,274
5,426
-6,289
96,727
35,350
36.5
217
58,743
65,032
76.5
(INR Million)
2019E
1,254,043
-0.1
201,759
16.1
61,487
140,273
53,662
5,231
0
91,842
27,835
30.3
42
61,556
61,556
-5.3
2020E
1,263,269
0.7
218,883
17.3
61,403
157,480
53,514
4,650
0
108,615
31,999
29.5
37
74,173
74,173
20.5
Balance Sheet
Y/E Mar
Share Capital
Reserves
Net Worth
Minority Interest
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Goodwill on consolidation
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Net Current Assets
Total Assets
2013
9,714
332,008
341,722
16,694
702,707
31,185
1,092,308
1,352,650
798,379
554,271
130,650
137,862
24,974
620,943
240,912
139,940
106,200
133,892
376,391
244,552
1,092,308
2014
9,714
395,606
405,320
17,377
837,805
25,550
1,286,052
1,570,087
969,844
600,242
157,488
259,564
24,251
674,492
268,800
160,058
112,729
132,906
429,985
244,508
1,286,052
2015
9,714
303,780
313,494
17,039
828,887
28,618
1,188,037
1,512,105
965,176
546,928
134,075
286,781
20,804
600,639
251,499
133,099
101,246
114,796
401,191
199,448
1,188,037
2016
9,702
275,086
284,789
16,542
883,646
28,830
1,213,807
1,590,548
1,121,252
469,296
137,194
354,879
20,845
650,068
203,560
117,012
114,317
215,180
418,475
231,594
1,213,807
2017
9,702
345,741
355,443
16,017
850,709
91,091
1,313,260
1,265,617
380,498
885,118
34,947
157,841
67,840
578,376
248,038
115,868
105,942
108,528
410,863
167,513
1,313,260
2018E
9,702
387,153
396,856
16,234
863,788
104,166
1,381,043
1,386,376
440,318
946,058
34,947
123,121
67,840
633,644
275,104
130,674
119,339
108,528
424,568
209,076
1,381,043
(INR Million)
2019E
9,702
439,158
448,861
16,276
867,669
109,693
1,442,498
1,462,257
501,804
960,452
34,947
134,501
67,840
669,148
274,859
130,558
155,204
108,528
424,391
244,758
1,442,498
2020E
9,702
503,777
513,480
16,313
867,669
116,446
1,513,908
1,500,637
563,207
937,429
34,947
199,501
67,840
700,047
276,881
131,518
183,120
108,528
425,857
274,190
1,513,908
9 October 2017
9

Tata Steel
Financials and Valuations
Ratios
Y/E Mar
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
RoIC
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2.8
2.9
4.1
5.2
2.3
2.1
1.7
1.4
1.2
38
65
54
1.2
39
66
56
1.2
35
66
50
1.0
36
63
64
0.9
38
81
60
0.9
38
80
58
0.9
38
80
58
0.8
38
80
58
0.7
6.7
8.5
15.0
9.3
12.3
1.3
6.1
8.2
4.6
5.4
3.3
15.7
9.4
13.3
19.1
11.6
14.7
15.9
10.3
13.0
16.6
11.0
14.7
444.2
3.2
0.9
10.3
1.1
19.6
2.7
0.9
8.5
1.1
243.9
3.8
1.0
11.0
1.1
90.8
4.6
1.2
19.1
1.1
18.4
2.1
1.3
8.4
1.1
10.4
1.9
1.1
6.7
1.1
11.0
1.6
1.1
6.9
1.1
9.1
1.4
1.1
6.2
1.1
1.6
-18.4
217.3
8.0
886.5
35.5
97.8
255.1
8.0
39.2
2.9
20.5
184.7
8.0
407.4
7.7
19.6
151.9
8.0
124.2
37.9
15.4
329.9
8.0
25.1
66.9
124.8
372.6
8.0
14.2
63.4
129.2
426.1
8.0
15.1
76.4
142.1
492.6
8.0
12.5
2013
2014
2015
2016
2017
2018E
2019E
2020E
Cash Flow Statement
Y/E Mar
Adjusted EBITDA
Non cash opr. exp (inc)
(Inc)/Dec in Wkg. Cap.
Tax Paid
Other operating activities
CF from Op. Activity
(Inc)/Dec in FA & CWIP
Free cash flows
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax) & Others
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
123,212
4,424
31,293
-25,690
0
133,239
-154,715
-21,476
20,569
5,582
-128,564
2,646
25,153
-34,657
-13,590
-20,448
-15,772
121,972
106,200
2014
164,110
10,172
-12,696
-30,127
0
131,459
-164,201
-32,742
14,356
14,770
-135,075
156
58,658
-39,424
-9,244
10,146
6,529
106,200
112,729
2015
127,758
11,797
3,514
-24,270
0
118,798
-134,924
-16,126
28,339
2,476
-104,109
167
42,119
-56,938
-11,520
-26,172
-11,483
112,729
101,246
2016
75,857
5,894
54,332
-16,450
0
119,632
-114,859
4,773
39,798
7,784
-67,277
550
15,329
-45,669
-9,494
-39,284
13,071
101,246
114,317
2017
170,078
5,736
-48,907
-18,427
0
108,481
-77,156
31,324
3,552
-11,509
-85,113
6,519
27,041
-49,986
-9,498
-25,924
-2,557
108,499
105,942
2018E
210,684
0
-28,166
-22,275
0
160,243
-72,960
87,283
0
-8,652
-81,612
0
0
-55,932
-9,302
-65,234
13,397
105,942
119,339
(INR Million)
2019E
201,759
0
184
-22,308
0
179,635
-83,380
96,255
0
5,231
-78,149
0
0
-56,319
-9,302
-65,621
35,865
119,339
155,204
2020E
218,883
0
-1,517
-25,246
0
192,120
-103,380
88,740
0
4,650
-98,730
0
0
-56,171
-9,302
-65,474
27,916
155,204
183,120
9 October 2017
10

Tata Steel
NOTES
9 October 2017
11

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Tata Steel
Disclosure of Interest Statement
Analyst ownership of the stock
Tata Steel
No
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9 October 2017
12