16 October 2014
| Sector: Metals
Tata Steel
BSE Sensex
26,349
S&P CNX
7,864
CMP: INR456
TP: INR617
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
TATA IN
971.2
579/301
-9/-8/23
443.0
7.2
Signs non-binding MoU to sell TSE’s long product and
distribution business
Right decision to bite the bullet
Financial Snapshot (INR b)
Y/E Mar
2015E 2016E 2017E
1,476. 1,484. 1,570.
Net Sales
2
0
3
EBITDA
181.5 198.1 226.6
Adj PAT
EPS (INR)
Growth (%)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
EV/EBITDA (x)
46.5
37.9
6.7
12.5
8.9
12.0
1.4
6.6
55.3
55.1
45.5
13.0
9.5
8.3
1.2
6.1
68.9
69.0
25.3
15.2
10.6
6.6
1.0
5.3
Shareholding pattern (%)
As on
Sep-14 Jun-14 Sep-13
Promoter
DII
FII
Others
31.4
24.3
20.8
23.5
31.4
24.5
20.8
23.3
31.4
26.1
16.3
26.3
FII includes depository receipts
Stock Performance (1-year)
600
500
400
300
200
Tata Steel
Sensex - Rebased
Tata Steel signs a non-binding MoU with less known Klesch group to sell
Tata Steel Europe’s (TSE) long product facilities at Scunthrope etc. and
distribution business. The MoU allows Klesch to undertake due diligence.
There is no certainty regarding final sale of assets.
The assets in MoU involves 4.5mtpa (v/s. 17.4mtpa for TSE) of integrated
steel mill at Scunthrope, 8 associated offsite downstream facilities, and 19
distribution facilities across Europe. Scunthrope produced 3.2mt liquid steel
(v/s. 15.5 for TSE) during FY14. The profitability of these assets is not known
separately. However, these assets are well known to be least profitable
among all. During 1QCY05 and 1QCY07, the long product business
generated average quarterly EBIT of GBP17m against GBP122m for Strip
products. A total of 6,500 employees are engaged into operations of these
assets v/s. 30,500 in TSE.
We believe a final sale irrespective of price will be positive for Tata Steel in
long term. Tata Steel has not been able to make this asset upto mark
despite investment and restructuring. Good seven and half years have
passed after acquisition. We believe it is right decision to bite the bullet.
Perhaps, Klesch will do better who has better track record of turning
around assets.
Europe mills are currently benefitting from expansion in spreads due to
demand recovery albeit slower and oversupply of iron ore and coking coal.
This situation in unlikely to sustain due to oversupply of steel in Chinese
steel market, in our view. Steel scrap prices have outperformed BOF RM
basket and is unsustainable. Exploding imports are adversely affecting
volumes for European mills.
We believe that the margins of Tata Steel for Indian operations are at risk
due to volatility in international steel/scrap prices. We need to watch out
for safeguard duty, USD/INR rate fluctuation, and Indian demand recovery
for any relief from risk to margin. Tata steel’s chrome ore mines are closed
due to litigation for redistribution of resource by smaller players like IMFA,
Facor, etc. in Odisha. Jharkhand govt. too is not co-operating in issuing
express order to restart the recently closed Noamundi iron ore mines.
Although we are optimistic about the future of Tata Steel due to volumes
from new 3mtpa project, yet these issues put our estimates and Target
price at risk. Maintain
Buy.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033
Investors are advised to refer through disclosures made at the end of the Research Report.

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 (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
2012
1,329.0
11.9
124.2
9.3
45.2
79.0
42.5
15.7
33.6
85.8
36.4
42.4
49.5
15.9
-72.9
4.4
18.1
2013
1,347.1
1.4
123.2
9.1
55.8
67.5
39.7
4.8
-73.9
-41.3
32.3
-78.1
-73.6
0.3
-98.3
3.0
1.5
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
1,476.2
-0.7
181.5
12.3
61.8
119.8
48.1
5.6
7.9
85.2
37.5
44.0
47.7
39.8
7.8
-1.2
36.8
(INR Billion)
2016E
1,484.0
0.5
198.1
13.3
62.3
135.8
48.2
5.7
0.0
93.4
36.5
39.1
56.8
56.8
42.8
-1.5
53.5
2017E
1,570.3
5.8
226.6
14.4
69.6
157.0
49.0
5.8
0.0
113.8
43.4
38.1
70.4
70.4
24.0
-1.6
67.1
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
2012
9.7
416.6
426.3
647.4
24.4
1,109.1
1,133.0
712.0
421.0
200.3
26.2
609.7
256.0
148.8
122.0
82.9
321.7
183.2
138.5
288.0
1,109.1
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
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
471.5
481.2
873.0
30.8
1,402.0
1,646.0
1,031.6
614.4
343.6
24.3
627.3
242.7
161.8
121.9
101.0
365.1
210.3
154.8
262.3
1,402.0
(INR Billion)
2016E
2017E
9.7
9.7
516.1
574.4
525.9
584.1
873.0
873.0
37.1
44.6
1,452.9
1,518.6
1,851.0
2,006.0
1,093.9
1,163.5
757.1
842.5
258.6
223.6
24.3
24.3
621.6
649.2
243.9
258.1
162.6
172.1
114.1
118.0
101.0
101.0
366.2
378.5
211.4
223.7
154.8
154.8
255.4
270.7
1,452.9
1,518.6
E: MOSL Estimates
16 October 2014
2

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
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)
2012
18.6
99.7
260.2
12.0
84.9
24.5
4.6
1.8
0.7
7.8
2.6
17.1
7.4
1.2
40.9
70.3
55.5
2.1
2013
1.6
-17.1
217.3
8.0
4,916.2
290.7
-26.7
2.1
0.8
8.5
1.8
4.2
6.1
1.2
37.9
65.3
59.0
2.8
2014
35.5
94.2
255.1
8.0
36.6
12.9
4.8
1.8
0.8
7.2
1.8
7.8
8.8
1.1
39.3
66.0
63.3
3.0
2015E
37.9
109.6
333.2
8.0
36.7
12.0
4.2
1.4
0.8
6.6
1.8
12.5
8.9
1.1
40.0
60.0
59.3
2.3
2016E
55.1
119.2
379.2
9.0
25.8
8.3
3.8
1.2
0.8
6.1
2.0
13.0
9.5
1.0
40.0
60.0
60.0
2.1
2017E
69.0
140.7
439.2
9.0
20.8
6.6
3.2
1.0
0.8
5.3
2.0
15.2
10.6
1.0
40.0
60.0
60.8
1.8
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
2012
85.8
45.2
-15.7
42.5
-36.5
11.6
112.8
-121.4
78.5
-5.1
-48.0
6.0
-39.8
-37.6
-11.6
-83.0
-18.2
140.2
122.0
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
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
85.2
61.8
-5.6
48.1
-32.2
5.6
154.9
-159.1
39.1
13.5
-106.5
0.0
20.0
-49.9
-9.3
-39.2
9.2
112.7
121.9
(INR Billion)
2016E
2017E
93.4
113.8
62.3
69.6
-5.7
-5.8
48.2
49.0
-30.2
-35.9
-1.0
-11.4
166.9
179.4
-120.0
-120.0
0.0
0.0
5.7
5.8
-114.3
-114.2
0.0
0.0
0.0
0.0
-50.0
-50.8
-10.5
-10.5
-60.4
-61.3
-7.8
3.9
121.9
114.1
114.1
118.0
E: MOSL Estimates
16 October 2014
3

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Tata Steel
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TATA STEEL
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