13 August 2014
1QFY15 Results Update | Sector:
Metals
Tata Steel
BSE SENSEX
25,919
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
7,740
TATA IN
971.2
579/224
0/17/87
CMP: INR535
TP: INR650
Buy
Below estimates; EPS cut; cash flow outlook intact
EBITDA below estimates on disappointment in subsidiaries:
consolidated EBITDA
increased 16% YoY to INR42.7b (v/s est. of INR45.6b). Indian operation’s (TSI)
EBITDA at INR32.6b (+15% YoY) was in-line on strong margins and volumes.
European operation’s (TSE) EBITDA increased 28% YoY to INR9.95b (v/s est. of
INR11b). TSE’s EBITDA per ton was respectful at USD52/t. The contribution from
other subsidiaries disappointed due to pressure from Chinese competition.
Higher interest depreciation & tax rate dragged PAT:
Depreciation charges were
7% higher than estimates pursuant to Companies Act 2013 becoming effective on
1st April, 2014. Interest cost increased 7% QoQ due to higher interest on term
loans. Consolidated PBT (before EO) increased 14% YoY (-32% QoQ) to INR16.9b,
23% below estimates as a combined effect of lower EBITDA, higher interest and
depreciation charges. Adjusted PAT declined 47% YoY (-45% YoY) to INR6b (v/s
est. of INR13.2b).
INR16b cash inflow from asset sales:
Extra-ordinary items dragged reported
consolidated PAT by net INR2.6b to INR3.4b. There was gain of INR13.1b (INR16b
net cash inflow during the quarter) on sales of investment in Dhamra Port and
impairment of INR15.7b towards investment in Mozambique coal mines.
EPS cut but cash flow outlook intact; Maintain Buy:
Although our consolidated
EBITDA estimates remain unchanged, there is a cut of 27%/ 24% in FY15/ FY16
EPS respectively due to higher interest and depreciation charge. The cash flow
outlook remains intact. Tata Steel is well positioned with new capacities in India
to capitalize on expected acceleration in demand growth. Maintain
Buy.
M.Cap. (INR b) / (USD b) 519.3/8.5
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
( )
2015E 2016E 2017E
1,498.3 1,474.7 1,557.6
190.8
48.1
39.5
11.3
12.6
9.7
13.5
1.6
6.5
196.0
49.4
49.0
24.0
12.4
9.6
10.9
1.4
6.3
222.9
60.6
60.5
23.4
13.6
10.6
8.8
1.2
5.5
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
TSI EBITDA in-line; TSE below yet good; other subs. disappointed; higher
int. & dep. dragged PAT
Consolidated EBITDA increased 16% YoY (-15% QoQ) to INR42.7b (v/s est. of
INR45.6b). Indian operation’s (TSI) EBITDA at INR32.6b (+15% YoY, -21% QoQ)
was in-line on strong margins and volumes. European operation’s (TSE) EBITDA
increased 28% YoY to INR9.95b (v/s est. of INR11b). TSE’s EBITDA per ton was
respectful at USD52/t. The contribution from other subsidiaries disappointed
due to pressure from Chinese competition.
Depreciation charges were 7% higher than estimates pursuant to Companies Act
2013 becoming effective on 1st April, 2014.
Interest cost increased 7% QoQ due to higher interest on term loans.
Consolidated PBT (before EO) increased 14% YoY (-32% QoQ) to INR16.9b, 23%
below estimates as a combined effect of lower EBITDA, higher interest and
depreciation charges.
Adjusted PAT declined 47% YoY (-45% YoY) to INR6b (v/s est. of INR13.2b).
Extra-ordinary items dragged reported consolidated PAT by net INR2.6b to
INR3.4b. There was a gain of INR13.1b (INR16b net cash inflow during the
quarter) on sales of investment in Dhamra Port. There was a non-cash charge of
INR15.7b towards impairment of investment in Mozambique coking coal mines.
Standalone (TSI): operating performance strong on expected line
Superior volume growth in
target segment
Net sales increased 11% YoY to INR105b driven by 5% volume growth and 6%
higher NSR (net sales realization). Steel NSR increased 1% QoQ.
Sales volumes increased 11% YoY to 2.1mt. Volumes in auto segment increased
16% YoY to 327kt. Branded products grew 12% YoY to 759kt.
EBITDA increased 15% YoY to INR32.6b on higher volumes and better margins.
EBITDA per ton for steel segment was up 10% YoY (-6% QoQ) to INR14,899 (or
by USD9 to USD250).
13 August 2014
2

Tata Steel
FY15 capex guidance for TSI
cut by INR10b
Depreciation increased 7% QoQ (+7% YoY) pursuant to Companies Act 2013
becoming effective on 1
st
April, 2014.
Interest expense increased 6% QoQ (+6% YoY) to INR4.9b due to increase in
term loan cost.
Adjusted PAT increased 9% YoY to INR14.8b. Reported PAT of INR22.7b included
EO income of INR7.9b for sale of investment in Dhamra Ports.
Tata steel has already spent INR176b (including INR13b during 1QFY15) on
Kalinganagar Project in Odisha (KPO) and plans to spend INR85b in FY15. The
project is expected to be completed by end of FY15. Together with KPO, the
TSI’s capex will range INR95b in FY15 v/s previous guidance of INR100-105b.
While the mining operations in Odisha were suspended for a fortnight following
the Supreme Court order in May 2014, the State Government issued Express
Order(s) that enabled the Company to resume its mining operations in two iron
ore mines and two manganese mines in Odisha
The Express Orders by the Government of Odisha for the Khondbond iron ore
mines and Sukinda chromite mines are still pending. Consequently, all
operations in these mines are still suspended. This has led to stoppage of
operations of our Ferro Alloys plants since the first week of August 2014
Tata steel Europe: EBITDA per ton up 60% QoQ to USD52/t
Margins improving in
challenging environment
Liquid steel production was flat YoY at 3.7mt. Sales volumes increased 2% YoY to
3.2mt. Sales tonnage declined 21% QoQ due to imports pressure.
EBITDA increased 28% YoY (22% QoQ) to INR9.95b helped by better margins.
EBITDA per ton at USD52/t was partially boosted by NRV write-back of USD6/t
(GBP13m).
Despite down trending steel prices, TSE has been able to improve margins
through cost management and focus on increasing volumes of differentiated
products (+20% YoY).
Source: MOSL, Company
Other subsidiaries: further deterioration
The contribution from other subsidiaries was disappointing at INR217m only.
Nat Steel’s profitability was affected by pricing pressure and sticky scrap prices.
Tata Steel Thailand has improved yield and availability of value added cut and
bend products.
13 August 2014
3

Tata Steel
Cash flow outlook remains robust; Maintain Buy
The key to TSE’s profitability
lies in cost management
and improving
differentiated products.
TSI’s competitive position in
India is strengthening
Cut is EPS, but the cash flow
outlook remains intact
Mining related issues - not
totally out of woods
Eurofer has raised the CY2014 steel demand growth outlook somewhat to 3.7%.
However, the demand growth will decelerate in 2HCY2014. Imports continue to
hamper the deliveries of European mills. TSE will continue to focus on
differentiated products. We believe that the overall market condition will
remain challenging. The key to TSE’s profitability lies in cost management and
improving differentiated products. We believe that there are huge opportunities
for TSE in cost management. We expect TSE to deliver EBITDA per ton of USD52
and USD61 in FY15 and FY16 respectively.
TSI is likely to benefit from acceleration in Indian demand growth on back of
recovery in economy. TSI’s competitive position in India is strengthening at the
cost of competition. Secondary producers are suffering from shortage of iron
ore, coal, inefficient sponge iron production route, stretched balance sheet and
working capital. Some of the larger producers like Bhushan Steel, Essar Steel etc.
too have highly leveraged balance sheet.
Although our consolidate EBITDA estimates remain unchanged, there is a cut
27% and 24% in FY15 and FY16 EPS respectively due to higher interest and
depreciation charge. The cash flow outlook remains intact.
We remain optimistic for Tata Steel as far as mining related regulatory issues are
concerned in India. With Khondbond and Sukinda mines still closed, Tata Steel is
still not totally out of woods.
We believe that the accelerating global (ex-China) demand (key market for Tata
Steel) is likely to drive volumes and margins for Tata Steel. KPO is rightly
positioned to leverage upturn in Indian steel demand. Tata Steel is one of few
Indian steel companies that can fund capex from internal cash flows. Maintain
Buy.
13 August 2014
4

Tata Steel
Tata Steel: SOTP Valuation
2013
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)
2014
2015E
2016E
2017E
263
234
259
7.5
8.5
9.0
113,232 128,169 143,813
5.5
5.5
6.5
622,778 704,930 934,783
641
726
962
243
249
9.5
11.2
139,399 166,187
6.5
6.5
906,092 1,080,214
933
1,112
11
33
43
53
53
43
36
37
37
37
-32
-3
6
16
16
16.7
18.0
18.5
18.8
18.8
-29,370
-3,184
6,242
17,277
17,434
7.0
7.0
7.0
7.0
7.0
-205,588 -22,289 43,696 120,938 122,038
-212
-23
45
124
126
417,190 682,641 978,479 1,027,030 1,202,252
601,496 739,219 725,280 724,684 717,298
619
761
747
746
738
2.8
3.0
2.2
2.0
1.7
347,484 256,484 215,484
358
264
222
33
90,889
90,889
90,889
94
94
94
20
20
20
558,724 631,542 773,149
575
650
796
13 August 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.
Indian iron ore mines are significant driver of
margins. Shah commission report has pointed
certain gaps in statutory permission albeit largely
due to ambiguity in law & inefficiencies of govt.
machinery.
Raised USD1.5b dual tranche bonds. USD500m at
4.85% due on 31
st
Jan, 2020 and USD1b at 5.95%
due on 31
st
Jul, 2024.
We expect gradually operating cash flows to
outstrip capex thereby leading to peaking of net
debt. The stock trades at EV of 6.5x FY15E
EBITDA. Maintain
Buy.
We believe that Indian steel demand growth has
hit bottom in FY14. We expect Indian steel
demand growth to accelerate to 4% in FY15 and
6% in FY16.
The conversion spreads for steel mills are
expanding on global demand (ex-China) growth
and oversupply of iron ore and coking coal.
Recent developments
Key investment arguments
TSI (India) is likely to benefit from productivity
gains, volume growth and acceleration of domestic
demand growth.
3mtpa expansion at Kalinganagar is expected to be
completed in 1HFY16. New Greenfield site has laid
the foundation for next leg of growth for its high
margin business in India.
TSE will continue its focus on cost reduction and
product mix improvement. Slowing Chinese GDP
has eased the pressure on raw material supply and
prices. European steel demand is expected to
accelerate from near stagnation in 2013 to 3%
growth in CY14 & CY15. The conversion spreads for
flat products are expanding.
Net debt has peaked because cash flows with
outstrip capex.
Valuation and view
Sector view - positive
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
FY15E
FY16E
TATA
Steel
10.0
8.4
1.6
1.4
0.9
0.8
6.5
6.2
SAIL
11.3
10.5
0.7
0.7
1.2
1.2
8.6
7.4
JSW
steel
8.4
8.6
1.1
1.0
1.2
1.1
6.3
6.1
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY15
FY16
39.5
49.0
Consensus
Forecast
45.3
52.6
Variation
(%)
-12.9
-6.9
Target price and recommendation
Current
Price (INR)
535
Target
Price (INR)
650
Upside
(%)
21.5
Reco
Buy
Shareholding pattern (%)
Jun-14
Promoter
DII
FII
Others
31.4
24.5
20.8
23.3
Mar-14
31.4
25.4
18.4
24.8
Jun-13
31.4
26.3
15.9
26.5
Stock performance (1-year)
Note: FII Includes depository receipts
13 August 2014
6

Tata Steel
Financials and valuation
Income statement
Y/E Mar
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
2014
1,486.1
10.3
164.1
11.0
58.4
105.7
43.4
5.2
-1.4
66.1
30.6
46.3
35.5
36.9
13,331.4
-0.6
34.5
2015E
1,498.3
0.8
190.8
12.7
60.8
130.0
48.1
5.6
7.9
95.4
46.1
48.3
49.3
41.4
12.2
-1.2
38.4
(INR Billion)
2016E
1,474.7
-1.6
196.0
13.3
60.1
135.8
47.6
5.7
0.0
94.0
43.1
45.8
50.9
50.9
22.9
-1.5
47.6
2017E
1,557.6
5.6
222.9
14.3
67.5
155.5
48.5
5.8
0.0
112.8
50.7
45.0
62.1
62.1
22.0
-1.6
58.8
Ratios
Y/E Mar
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)
2014
35.5
94.2
255.1
8.0
36.6
15.1
5.7
2.1
0.8
7.7
1.5
7.8
8.8
1.1
39.3
66.0
63.3
3.0
2015E
39.5
110.2
338.1
8.0
35.2
13.5
4.9
1.6
0.8
6.5
1.5
12.6
9.7
1.1
40.0
60.0
59.6
2.2
2016E
49.0
110.9
378.0
9.0
28.8
10.9
4.8
1.4
0.8
6.3
1.7
12.4
9.6
1.0
40.0
60.0
60.0
2.0
2017E
60.5
129.9
429.4
9.0
23.6
8.8
4.1
1.2
0.8
5.5
1.7
13.6
10.6
1.0
40.0
60.0
60.7
1.7
Balance sheet
Y/E Mar
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
2014
9.7
395.6
405.3
851.9
25.6
1,300.2
1,570.1
969.8
600.2
259.6
24.3
642.6
268.8
160.1
112.7
101.0
383.9
229.1
154.8
258.7
1,300.2
2015E
9.7
476.2
485.9
846.9
36.6
1,386.5
1,623.1
1,030.7
592.4
347.5
24.3
633.1
246.3
164.2
121.7
101.0
368.2
213.5
154.8
264.9
1,386.5
(INR Billion)
2016E
2017E
9.7
9.7
515.0
564.9
524.7
574.6
846.9
846.9
49.4
64.4
1,437.9 1,502.7
1,828.1 1,983.1
1,090.8 1,158.2
737.3
824.8
256.5
215.5
24.3
24.3
627.3
657.4
242.4
256.0
161.6
170.7
122.3
129.6
101.0
101.0
364.9
376.7
210.1
221.9
154.8
154.8
262.4
280.7
1,437.9 1,502.7
E: MOSL Estimates
Cash flow statement
Y/E Mar
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
2014
66.1
58.4
-5.2
43.4
-30.1
-12.7
131.5
-164.2
-3.8
33.0
-135.1
0.2
58.7
-39.4
-9.2
10.1
6.5
106.2
112.7
2015E
95.4
60.8
-5.6
48.1
-35.0
2.7
158.5
-162.9
39.1
13.5
-110.4
0.0
20.0
-49.9
-9.3
-39.2
8.9
112.7
121.7
(INR Billion)
2016E
94.0
60.1
-5.7
47.6
-30.3
3.1
168.7
-114.0
0.0
5.7
-108.3
0.0
0.0
-49.4
-10.5
-59.8
0.6
121.7
122.3
2017E
112.8
67.5
-5.8
48.5
-35.7
-10.9
176.3
-114.0
0.0
5.8
-108.2
0.0
0.0
-50.3
-10.5
-60.7
7.4
122.3
129.6
13 August 2014
7

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Analyst ownership of the stock
TATA STEEL LTD
No
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