12 February 2014
3QFY14 Results Update | Sector:
Metals
Tata Steel
BSE SENSEX
20,363
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
6,063
TATA IN
971.2
435/195
3/51/-3
Financials & Valuation (INR Billion)
Y/E Mar
Net Sales
EBITDA
Adj PAT
EPS (INR)
Gr. (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA
( )
2014E 2015E 2016E
1,474.7 1,528.3 1,550.3
159.0
34.5
33.7
2,048.2
7.8
8.8
11.6
1.7
7.0
178.6
44.9
44.3
31.6
15.5
9.8
8.8
1.4
6.3
191.8
56.7
56.5
27.5
17.0
10.3
6.9
1.2
5.8
CMP: INR390
TP: INR268
Sell
EBITDA growth lower than expected; net debt up sharply
Consolidated 3QFY14 EBITDA increased 8% QoQ to INR40b helped by growth in
TSE EBITDA, yet fell 4% short of estimates as margins failed to expand in Indian
operations despite price hikes. Average EBITDA per ton improved 10% QoQ to
USD101. TSE EBITDA was helped by GBP23m write-backs.
Although PBT was flat QoQ at INR14b, yet adjusted PAT declined 45% QoQ to
INR5b due to absence of 2QFY14 tax credits at TSE.
Net debt spiked by INR65b QoQ to INR716 due to increase in inventories,
investment in overseas mining projects, and Indian Greenfield projects.
Standalone EBITDA remained flat QoQ at INR29.4b despite 1% volume growth.
Cost of production benefitted by (1) lower coking coal cost, (2) lower staff
provisioning on account of change in discount rates for long term benefits, while
freight, repair, forex impact drove up the operating costs.
TSE’s liquid steel production was strong at 3.9m tons (+1% QoQ) leading to
inventory increase. EBITDA increased 55% QoQ to INR8.6b helped by
manufacturing gains and reversal of GBP23m on account of access paid towards
electricity. Inventories liquidation is expected to boost volumes in 4QFY14.
Cons EBITDA for FY14 has been cut 3.4% to INR159b due to lower than expect 3Q
performance of India operation. EPS however is cut sharper by 16.8% to
INR33/share due to higher than expected taxes at TSE.
Cons EBITDA for FY15 too is cut by 5.9% due to cut in India volumes and slight
moderation in margins. We have marginally improved the estimates for TSE.
SOTP based target price has been cut 11% to INR268/share to factor lower India
volumes, and higher net debt as operating cash flows shrink. Maintain
Sell.
M.Cap. (INR b) / (USD b) 378.9/6.1
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Investors are advised to refer through disclosures made at the end of the Research Report.

Tata Steel
Consolidated: EBITDA growth lower than expected; net debt up sharply
Consolidated EBITDA increased 8% QoQ to INR40b helped by growth in TSE
EBITDA, yet fell 4% short of estimates as margins failed to expand in Indian
operations despite price hikes. Average EBITDA per ton improved 10% QoQ to
USD101. TSE EBITDA was helped by GBP23m write-backs.
Although PBT was flat QoQ at INR14b, yet adjusted PAT declined 45% QoQ to
INR5b due to absence of 2QFY14 tax credits at TSE.
Net debt (inclusive of INR22.75b perpetual bonds) has increased sharply by
INR65b QoQ to INR716 due to increase in inventories, investment in overseas
mining projects, and Indian Greenfield projects.
Standalone: margins failed to improve despite price hikes
Jump in operating and
freight expenses eroded RM
and staff gains
Volume guidance for FY15
has been cut from 9m tons
to 8.8m tons.
Net sales increased 2% QoQ to INR101.4b driven by 1% growth in volume and1%
increase in realization on expected line. Despite price hikes announced, the
average realization growth was diluted by higher share of lower value HRC as
flat product volumes ramped up.
Long product volumes declined further 3% QoQ to 660kt due to shutdown
spanning September and October. Flat product sales volumes increased 4% QoQ
to 1.41m tons.
EBITDA remained flat QoQ at INR29.4b despite 1% volume growth. Cost of
production benefitted by (1) lower coking coal cost, (2) lower staff provisioning
on account of change in discount rates for long term benefits, while freight,
repair, forex impact drove up the operating costs.
EBITDA per ton for steel segment was down 2% QoQ to INR13,010 (or USD210).
Adjusted PAT declined 3% QoQ to INR15.2b
Volume guidance for FY15 has been cut from 9m tons to 8.8m tons. Weak
economic conditions are affecting demand from steel consuming sectors
although INR/USD depreciation is helping realization. Sentiment has improved
marginally helped by seasonal factors.
2
12 February 2014

Tata Steel
Tata steel has already spent INR145b (INR69b YTD) on Kalinganagar Project in
Odisha (KPO) and plans to spend INR90b over next 12 months. The project is
expected to be tentatively commissioned by end of FY15.
Tata steel Europe: expect inventories liquidation in 4QFY14
Production remains strong
Operating leverage helping
margins
Expect strong 4Q, but
margins will depend on
market condition
Liquid steel production improved further 1% QoQ to 3.91m tons. Sales volumes
however declined 8% QoQ (+5.6% YoY) to 3.19m tons due to seasonal factors
leading to increase in inventories by 300kt to 2.6m tons.
EBITDA increased 55% QoQ to INR8.6b helped by manufacturing gains and
reversal of GBP23m on account of excess paid towards electricity. Product price
correction was offset by cost reduction on account of raw materials. EBITDA per
ton increased 69% QoQ to USD43.
EU steel demand is expected to gradually improve 3% YoY in 2014. TSE will ramp
up production from currently operating facilities and has no plan for restarting
the mothballed capacities.
TSE expects to liquidate inventories in 4QFY14 leading to sales volumes
surpassing production.
We are factoring volume growth of 3% each in FY14 and FY15.
Source: MOSL, Company
Other subsidiaries: China operations were strong
EBITDA remained flat QoQ at INR2.1b despite 14% increase in volumes to 1.1m
tons. China operation of Natsteel was the key driver of volumes, while Thailand
operations were affected by political disturbances.
Losses at South Africa Ferro-chrome operations affected growth in EBITDA.
Construction outlook remains positive in SEA region, but imports from China is
putting pressure.
12 February 2014
3

Tata Steel
FY15 India volumes cut; net debt up sharply; TP and EPS cut
Expect stronger 4QFY14
volumes
Tata Steel is expected to deliver stronger (+12-13% QoQ) volumes in 4QFY14
helped by growth in Indian steel production and liquidation of inventories at
TSE.
Tata Steel India is expected to deliver 2.2m tons volumes in 4QFY14 but the
FY15 guidance is cut 2.5% to 8.8m tons due to slower than expected progress at
KPO. This is 2
nd
time during the year that the volume guidance is cut for FY15.
Net debt (inclusive of INR22.75b perpetual bonds) has increased sharply by
INR65b QoQ to INR716 due to increase in inventories, investment in overseas
mining projects, and Indian Greenfield projects.
Net debt is up sharply due
to reduction in cash & eq.
Quarterly movement in Net debt
800
750
700
650
600
550
500
540
1QFY13
554
2QFY13
588
3QFY13
567
4QFY13
625
716
651
Net Debt (incl. of perpetual bonds)
Cash & eq.
forward covers
1QFY14
2QFY14
3QFY14
Source: company, MOSL
Target price cut 11% to
INR268/sh. on India volume
cut and higher debt.
Cons EBITDA for FY14 has been cut 3.4% to INR159b due to lower than expected
3Q performance of India operation. EPS however is cut sharper by 16.8% to
INR33/share due to higher than expected taxes at TSE.
Cons EBITDA for FY15 too is cut by 5.9% due to cut in Indian volumes and slight
moderation in margins. We have marginally improved the estimates for TSE.
SOTP based target price has been cut 11% to INR268/share to factor lower India
volumes, and higher net debt as operating cash flows shrink.
Slowing Chinese economy and worsening credit situation there has impacted
demand for steel from the largest steel consumer. Rebar prices have seen
significant correction, but flat steel products have seen only moderate
correction. The spreads between steel prices and raw materials for HRC are
higher by USD50/t as compared to rebar. If the credit situation doesn’t improve
in China, the risks are high that HRC prices too will correct in China. This will
have impact on International market resulting in margin squeeze for partially
integrated players like Tata Steel. Maintain
Sell.
12 February 2014
4

Tata Steel
Tata Steel: SOTP Valuation
2011
India
EBITDA per ton (USD)
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)
EBIT
Target EV/EBIT multiple
EV (TSE) - (b)
INR/share
Target EV (c=a+b)
Net Debt (d)
INR/share
D/E x (adj for goodwill)
CWIP (e)
INR/share
(d1) Discount (%)
Investments (f)
INR/share
(d2) Discount (%)
TP (c-d+e*(1-d1)+f*(1-d2))
Target Price (INR /share)
363
6.4
114,329
6.5
743,136
765
51
42
9
17.1
7,011
7.0
49,080
51
792,216
494,001
509
2.4
2012
347
6.6
113,937
7.3
829,891
854
10
40
-29
17.6
-24,852
7.0
-173,963
-179
655,928
525,413
541
2.1
2013
263
7.5
113,232
5.5
622,778
641
11
43
-32
16.7
-29,370
7.0
-205,588
-212
417,190
601,496
619
2.8
2014E
224
8.3
118,991
5.5
654,448
674
37
36
1
17.8
644
7.0
4,510
5
658,958
726,421
748
3.2
2015E
218
8.8
123,201
5.5
677,603
698
50
36
14
18.3
15,106
7.0
105,740
109
783,343
741,103
763
2.8
247,902
255
33
65,445
67
20
260,689
268
12 February 2014
5

Tata Steel
Tata Steel: an investment profile
Company description
Tata Steel is the lowest cost steel producer in India.
Globally, it is the 12th largest steel company, with
24.1m tons of steel sales in FY13. It has operations
spread over Europe, the UK, Asia, North America and
rest of the world, with an annual capacity of 27m tons.
On a consolidated level, it has ~22% raw material
security. Annual production is likely to increase to 29-
30m tons with the help of Greenfield projects in Orissa.
Key investment risks
TATA's earnings have high leverage to steel prices
and earnings from European operations. The demand
scenario remains challenging in Europe
Recent developments
Tata Steel opened UK’s largest profiling centre for
steel plates in West Midlands, increasing its plate
processing capacity in the region by 50% to 47KT.
Key investment arguments
Valuation and view
Recent 2.9m-ton expansion at Jamshedpur would
lead to ~3m tons of incremental sales volumes over
FY12-15. Total consolidated sales tonnage is
expected to be 27.7m tons in FY15.
3mtpa expansion at Kalinganagar will increase the
share of high margin business.
Overseas investments in raw material assets are
likely to start generating cash flows in FY14.
In Europe, restructuring initiatives such as up-
gradation of plants, shutdown of old units and
downsizing of manpower should increase cost
effectiveness, going forward.
Debt will rise: Tata Steel remains committed to USD2-
2.5b CapEx annually for investment in Odisha project
and sustenance requirements. This will eat away
more than the operating cash flows. The
consolidated debt will still rise due to translation loss
and –ve free cash flows. The stock trades at EV 6.3x
FY15E EBITDA. Maintain
Sell.
Sector view
We have bearish view on ferrous companies due to
weak domestic demand and risk of cheaper imports
along with slow down in Chinese economy. Indian
steel producers have benefitted from low cost iron
ore from captive/ local mines, while steel prices have
been driven by international iron ore prices.
Comparative valuations
TATA
STEEL
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
11.6
8.8
1.7
1.4
0.7
0.7
7.0
6.3
JSW
Steel
17.4
13.1
1.3
1.2
1.2
1.1
6.6
6.5
9.6
9.5
0.6
0.6
1.0
1.1
9.0
8.0
SAIL
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
33.7
44.3
Consensus
Forecast
36.4
43.7
Variation
(%)
-7.3
1.3
FY14
FY15
Target price and recommendation
Current
Price (INR)
390
Target
Price (INR)
268
Upside
(%)
-31.3
Reco
Sell
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
31.4
25.3
19.1
24.2
Sep-13
31.4
26.1
16.3
26.3
Dec-12
31.4
27.9
16.9
23.9
Stock performance (1-year)
12 February 2014
6

Tata Steel
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2013
2014E
1,347.1 1,474.7
1.4
9.5
123.2
159.0
9.1
10.8
55.8
58.6
67.5
100.4
39.7
42.7
4.8
3.5
-73.9
0.0
-41.3
61.2
32.3
26.0
-78.1
42.5
-73.6
35.2
0.3
35.2
-98.3 12,699.4
3.0
-0.6
1.5
32.7
(INR Billion)
2015E
1,528.3
3.6
178.6
11.7
59.2
119.4
44.5
3.7
0.0
78.6
32.4
41.2
46.3
46.3
31.5
-1.4
43.1
2016E
1,550.3
1.4
191.8
12.4
59.4
132.4
44.8
4.0
0.0
91.6
33.3
36.4
58.3
58.3
25.9
-1.6
54.9
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation(x)
P/E
Cash P/E
Price / Book Value
EV/Sales
EV/EBITDA
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (No. of Days)
Inventory (No. of Days)
Creditors (No. of Days)
Leverage Ratios (%)
Net Debt/Equity (x)
2013
1.6
-17.1
217.3
8.0
4,916.2
248.7
-22.8
1.8
0.7
8.0
2.1
4.2
6.1
1.2
37.9
65.3
59.0
2.8
2014E
33.7
94.0
233.5
8.0
38.4
11.6
4.1
1.7
0.7
7.0
2.1
7.8
8.8
1.2
40.0
60.0
58.3
3.2
2015E
44.3
105.2
271.4
8.0
31.4
8.8
3.7
1.4
0.7
6.3
2.1
15.5
9.8
1.2
40.0
60.0
58.9
2.8
2016E
56.5
117.7
320.5
9.0
25.1
6.9
3.3
1.2
0.7
5.8
2.3
17.0
10.3
1.2
40.0
60.0
59.3
2.4
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2013
9.7
332.0
341.7
707.7
31.2
1,097.3
1,352.6
798.4
554.3
137.9
25.0
580.3
240.9
139.9
106.2
93.3
330.8
197.8
133.0
249.5
1,097.3
2014E
9.7
347.7
357.4
785.2
27.2
1,186.4
1,480.1
857.0
623.1
194.7
25.0
556.1
242.4
161.6
58.8
93.3
343.1
210.1
133.0
213.0
1,186.4
(INR Billion)
2015E
2016E
9.7
9.7
384.6
432.2
394.3
441.9
796.8
808.0
38.9
50.7
1,246.5 1,317.0
1,542.1 1,602.8
916.2
975.6
626.0
627.3
247.9
299.9
25.0
25.0
567.8
588.1
251.2
254.8
167.5
169.9
55.7
70.1
93.3
93.3
350.8
353.9
217.7
220.9
133.0
133.0
217.0
234.2
1,246.5 1,317.0
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Depreciation
Others
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2013
-41.3
55.8
-4.8
39.7
-25.7
31.3
133.2
-154.7
29.5
-3.3
-128.6
2.6
25.2
-34.7
-13.6
-20.4
-15.8
122.0
106.2
2014E
61.2
58.6
-3.5
42.7
-30.0
-10.9
118.1
-145.3
0.0
3.5
-141.8
0.0
30.0
-44.5
-9.3
-23.8
-47.4
106.2
58.8
(INR Billion)
2015E
78.6
59.2
-3.7
44.5
-20.7
-7.1
150.8
-122.0
0.0
3.7
-118.3
0.0
20.0
-46.3
-9.3
-35.6
-3.0
58.8
55.7
2016E
91.6
59.4
-4.0
44.8
-21.5
-2.9
167.4
-120.0
0.0
4.0
-116.0
0.0
20.0
-46.6
-10.5
-37.1
14.3
55.7
70.1
12 February 2014
7

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Tata Steel
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TATA STEEL LTD
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in Singapore to accredited investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Anosh Koppikar
Kadambari Balachandran
Email:anosh.Koppikar@motilaloswal.com
Email : kadambari.balachandran@motilaloswal.com
Contact(+65)68189232
Contact: (+65) 68189233 / 65249115
Office Address:21 (Suite 31),16 Collyer Quay,Singapore 04931
For Singapore
Motilal Oswal Securities Ltd
12 February 2014
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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