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Graph of Financial Year of Tata Company of Year 2008 to 2009 document sample
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F
TATA STEEL LTD BUY
I
C.M.P: Target Price: May 28, 2010
Rs.496.00 Rs.620.00
SYNOPSIS R
• Tata Steel is the world’s 5th largest steel company,
1 Year Comparative Graph
Asia’s first integrated steel company is now the S
world’s second most geographically diversified
steel producer, with operations in 27countries and
commercial presence in over 50 countries. T
• Tata Steel board approved a framework for co-
operation between Tata Steel Ltd and Nippon Steel
C
Corporation for the production and sales of
TATA STEEL LTD BSE SENSEX automotive cold-rolled flat products at A
Jamshedpur.
Stock Data • During the quarter company has entered into a L
Sector Steel memorandum of understanding (MoU) with
Face Value (Rs) Rs.10.00 National Mining Development Corporation
52 wk. High/Low (Rs.) Rs.737.00/330.60
(NMDC). L
Volume (2 wk. Avg.) 3153000 • Tata Steel`s European unit Corus to invest 35 mn
BSE Code 500470 euros in French steel mill.
Market Cap (Rs.mn.) 440155.36 • Tata Steel enters into Joint Venture Agreement
with New Millennium, Canada.
R
Share Holding Pattern
• TATA Steel and MMTC Ltd signed an agreement to
launch a 74:26 joint venture company.
E
• Net sales and PAT of the company are expected to
grow at a CAGR of 9% and 8% over 2009 to
S
2012E respectively.
E
Financials
(Rs.mn.) FY10A FY11E FY12E A
Net Sales 250219.80 280246.18 313875.72
V.S.R. Sastry
Equity Research Desk
R
EBIDTA 98058.80 110109.05 123138.38
vsrsastry@firstcallindiaequity.com
Dr. V.V.L.N. Sastry Ph.D.
PAT 50468.00 58028.58 65403.10 C
Chief Research Officer EPS (Rs) 56.78 65.39 73.70
drsastry@firstcallindia.com
P/E (x) 8.72 7.59 6.73
H
1
Peer Group Comparison
Market
Name of the company CMP(Rs.) Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/BV(x) Dividend (%)
TATA steel Ltd 496.00 440155.36 56.87 8.72 1.19 80
SAIL 205.55 849003.8 14.87 13.82 3.03 26
Jindal Steel & Power 653.65 608865.9 15.89 41.14 11.24 550
JSW Steel 1098.65 20550.1 108.14 10.16 2.13 10
Investment Highlights
• Results Update (Q4 FY10)
Tata Steel Ltd reported a rise in standalone net profit for the quarter ended
March 2010. During the quarter, the profit of the company increased 289.59%
to Rs 21622.80 million from Rs 5550.11 million in the same quarter previous
year. Net sales for the quarter increased 77.72% to Rs 73394.40 million from Rs
41298.40 million in the same quarter previous year. while total income for the
quarter increased 88.75% to Rs 78072.80 million, when compared with the
prior year period. Company posted earnings of Rs 24.37 a share during the
quarter, registering 220.83% growth over prior year period.
Quarterly Results - Standalone (Rs in mn)
As at Mar - 10 Mar - 09 %Change
Net Sales 73394.40 41298.40 77.72
PAT 21622.80 5550.11 289.59
Basic EPS 24.37 7.59 220.83
2
Net Sales & PAT Growth
During the quarter, Net sales increased by 77.72% to Rs.73394.40 million from
Rs.41298.40 million in the same quarter last year and the Total Profit for the
quarter ended March 2010 was Rs.21622.80 million grew by 289.59% from
Rs.5550.11 million compared to same quarter last year.
EPS Growth
The basic EPS of the company stood at Rs.24.37 for the quarter ended Mar 2010
from Rs.7.59 for the quarter ended Mar 2009.
3
Joint venture with Nippon Steel
Tata Steel board approved a framework for co-operation between Tata Steel (TSL)
and Nippon Steel Corporation (NSC) for the production and sales of automotive
cold rolled flat products at Jamshedpur to address the localization needs of
Indian automotive customers for high grade cold rolled steel sheet and contribute
to further expansion of the India automobile industry.
Signs MoU for mutual benefits
Tata Steel has entered into a memorandum of understanding (MoU) with National
Mining Development Corporation (NMDC). The MoU is aimed to explore the
possibility of acquisition, exploration and development of mines, extraction and
processing of minerals, setting up integrated steel plants and other businesses of
mutual interest.
To invest 35 mn euros in French steel mill
Tata Steel European unit Corus would invest Euro 35 million at its rail
production facility in Hayange in France after securing major contract
from French operator SNCF. Corus has secured a Euro 350 million contract to
supply rail tracks to SNCF. The contract is for an initial four years with an option
to extend it by a further two years.
Enters into Joint Venture Agreement with New Millennium
Tata Steel has entered into a joint venture (JV) agreement with Canada-based
New Millennium Capital Corp (NML) and LabMag for development of the Direct
Shipment Ore (DSO) project in Canada. Tata Steel will make its investment
decision for the said project within 180 days from the delivery of feasibility study
which is currently under process. The agreement envisages formation of a JV
Company upon closing of the transaction subsequent to a notice of JV
investment being delivered to NML by Tata Steel. Tata Steel will hold 80% stake
in the JV Company while 20% will be with NML. The Tata Group Company will
also fund 100% of the project cost of up to C$300 million.
Tata Steel launches exchange offer for CARS
The Board of Tata Steel Ltd has authorized the committee of the board to
consider and approve an exchange offer of new foreign currency convertible
bonds for any or all of the existing US$75,000,000 convertible alternative
reference securities due 2012.
4
Tata Steel and MMTC Form JV
Tata Steel Limited, one of the world`s largest produces iron and MMTC Ltd signed
an agreement to launch a 74:26 joint venture company. It was formed for
acquisition, development and operation of mines and processing of minerals and
metals. MMTC and Tata Steel have agreed to co-operate with each other and are
executing this agreement for setting up a joint venture for the above purpose.
Company Profile
The Tata Steel Ltd has always believed that mutual benefit of countries, corporations
and communities is the most effective route to growth. Tata Steel has not limited its
operations and businesses within India but has built an imposing presence around
the globe as well. With the acquisition of Corus in 2007 leading to commencement of
Tata Steel's European operations, the Company today, is among the top ten steel
producers in the world with an existing annual crude steel production capacity of
around 30 million tonnes per annum and employee strength of above 80,000 across
five continents. The Group recorded a turnover of Rs.147,329 Crores (US$ 28,962
million) in 2008 - 2009. The Company has always had significant impact on the
economic development in India and now seeks to strengthen its position of pre-
eminence in international domain by continuing to lead by example of responsibility
and trust.
Subsidiaries
Jamshedpur Injection Powder Limited (Jamipol)
Jamshedpur Utility and Services Company Limited (JUSCO)
Lanka Special Steel Limited
Rawmet Ferrous Industries
Sila Eastern Company Limited
Tata Steel KZN
Tata Metaliks Limited
Tata Pigments Limited
Tata Refractories Limited (TRL)
Tata Steel Processing and Distribution Limited (TSPDL)
Tata Sponge Iron Limited (TSIL)
Tayo Rolls Limited
Tinplate Company of India Limited (TCIL)
TRF Limited
The Indian Steel and Wire Products Limited (ISWP)
Joint Ventures
Dhamra Port Company, Orissa TM International Logistics Limited
mjunction services limited (TMILL)
Tata BlueScope Steel Limited Tata NYK
5
Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs. in million) FY09A FY10A FY11E FY12E
Description 12m 12m 12m 12m
Net Sales 243157.70 250219.80 280246.18 313875.72
Other Income 3082.70 8537.90 9220.93 10143.03
Total Income 246240.40 258757.70 289467.11 324018.74
Expenditure -151823.40 -160698.90 -179357.55 -200880.46
Operating Profit 94417.00 98058.80 110109.56 123138.28
Interest -11526.90 -15084.00 -15838.20 -17422.02
Gross Profit 82890.10 82974.80 94271.36 105716.26
Depreciation -9734.00 -10831.80 -11373.39 -12283.26
Profit before Tax 73156.10 72143.00 82897.97 93433.00
Tax -21138.70 -21675.00 -24869.39 -28029.90
Profit after Tax 52017.40 50468.00 58028.58 65403.10
Equity Capital 7307.90 8874.10 8874.10 8874.10
Reserves 239728.10 360743.90 418772.48 484175.58
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 730.79 887.41 887.41 887.41
EPS 71.18 56.87 65.39 73.70
6
Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs. in million) 30-Sep-09 31-Dec-09 31-Mar-10 30-Jun-10E
Description 3m 3m 3m 3m
Net Sales 56921.10 63748.80 73394.40 79265.95
Other Income 760.50 2635.60 4678.40 2767.38
Total Income 57681.60 66384.40 78072.80 82033.33
Expenditure -37698.80 -42179.80 -42087.00 -48352.23
Operating Profit 19982.80 24204.60 35985.80 33681.10
Interest -3920.00 -4157.20 -3585.20 -3656.90
Gross Profit 16062.80 20047.40 32400.60 30024.20
Depreciation -2563.70 -2621.80 -3114.60 -3270.33
Profit before Tax 13499.10 17425.60 29286.00 26753.87
Tax -4469.70 -5508.10 -7663.20 -8026.16
Profit after Tax 9029.40 11917.50 21622.80 18727.71
Equity Capital 8874.10 8874.10 8874.10 8874.10
Face Value 10.00 10.00 10.00 10.00
Total No. of Shares 887.41 887.41 887.41 887.41
EPS 10.18 13.43 24.37 21.10
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Key Ratios
Particulars FY09A FY10A FY11E FY12E
EPS (Rs.) 71.18 56.87 65.39 73.70
EBITDA Margin (%) 38.83% 39.19% 39.29% 39.23%
PAT Margin (%) 21.39% 20.17% 20.71% 20.84%
P/E Ratio (x) 6.97 8.72 7.59 6.73
ROE (%) 21.06% 13.65% 13.57% 13.27%
ROCE (%) 19.82% 13.65% 13.74% 13.73%
EV/EBITDA (x) 3.84 4.49 4.00 3.57
Debt-Equity Ratio 0.73 0.73 0.68 0.64
Book Value (Rs.) 338.04 416.51 481.90 555.61
P/BV 1.47 1.19 1.03 0.89
Charts
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Outlook and Conclusion
• At the current market price of Rs.496.00 the stock is trading at a P/Ex of 7.59x
for FY11E and 6.73x for FY12E.
• The EPS of the stock is expected to be at Rs.65.39 and Rs.73.70 for FY11E and
FY12E respectively.
• On the basis of price to book value, the stock trades at 1.03x and 0.89x for
FY11E and FY12E respectively.
• On the basis of EV/EBITDA, the stock trades at 4.00 x for FY11E and 3.57 x for
FY12E.
• The Net sales and PAT of the company is expected to grow at a CAGR of 9% and
8% respectively over FY09 to FY12E.
• Tata Steel has entered into a memorandum of understanding (MoU) with
National Mining Development Corporation (NMDC).
• Tata Steel European unit Corus would invest Euro 35 million at its rail
production facility in Hayange in France after securing major contract
from French operator SNCF.
10
• Tata Steel has entered into a joint venture (JV) agreement with Canada-based
New Millennium Capital Corp (NML) and LabMag for development of the Direct
Shipment Ore (DSO) project in Canada.
• Tata Steel Limited, one of the world`s largest produces iron and MMTC Ltd
signed an agreement to launch a 74:26 joint venture company.
• We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘ STRONG BUY’ in this particular scrip with a target price
of Rs.620.00 for Medium to Long term investment.
Industry Overview
Sector structure/Market size
The steel industry in India has been moving from strength to strength and according
to the year-end review by the Press Information Bureau, India has emerged as the
fourth largest producer of steel in the world and the second largest producer of crude
steel.
Significantly, state-owned steel maker, Steel Authority of India (SAIL), which reported
a net profit of US$ 571 million in January-June 2009, has become the most profitable
steel company globally, beating steel majors such as Arcelor Mittal, Posco, Bao Steel
and Nippon in the half yearly profits.
Production
Steel production reached 28.49 million tonne (MT) in April-September 2009. The
National Steel Policy has a target for taking steel production up to 110 MT by 2019–
20. Nonetheless, with the current rate of ongoing greenfield and brownfield projects,
the Ministry of Steel has projected India's steel capacity is expected to touch 124.06
MT by 2011–12. In fact, based on the status of memoranda of understanding (MoUs)
signed by the private producers with the various state governments, India's steel
capacity is likely to be 293 MT by 2020.
Consumption
India accounts for around 5 per cent of the global steel consumption. Almost 70 per
cent of the total steel used is for kitchenware. However, its use in railway coaches,
wagons, airports, hotels and retail stores is growing immensely.
India's steel consumption rose by 6.8 per cent during April-November 2009 over the
same period a year ago on account of improved demand from sectors like automobile
and consumer durables.
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A Credit Suisse Group study states that India's steel consumption will continue to
grow by 16 per cent annually till 2012, fuelled by demand for construction projects
worth US$ 1 trillion.
The scope for raising the total consumption of steel is huge, given that per capita steel
consumption is only 35 kg – compared to 150 kg across the world and 250 kg in
China.
Steel players like JSW Steel and Essar Steel are increasing their focus on opening up
more retail outlets pan India with growth in domestic demand. JSW Steel currently
has 50 such steel retail outlets called JSW Shoppe and is targetting to increase it to
200 by March 2010. They expect at least 10-15 per cent of their total production to be
sold by their retail outlets.
Essar Steel which currently has over 300 retail outlets across the country, plans to set
up 5,000 outlets of various formats soon. It expects to sell 3MT of steel through the
retail route in two years.
Exports
Out of India's annual iron ore production of more than 200 MT, about 50 per cent is
exported.
India's iron ore exports more than doubled to 9.3 million tonne in October 2009 as
compared to 4.4 million tonne in the same month a year ago on the back of increase in
demand from Chinese steel producers, as per a joint study by a group of iron ore
exporters.
Iron ore is a key input in steel making. The country’s iron ore exports during April-
October 2009 period grew 20 per cent over the year ago period to 53 million tonne, as
per the study.
Investments
A host of steel companies have lined up major investment proposals. Furthermore,
with an expanding consumer market, the Indian steel industry is likely to receive huge
domestic and foreign investments.
The domestic steel sector has attracted a staggering investment of about US$ 236
billion, according to the Minister of State for Steel A Sai Prathap.
This consists of nearly 222 MoUs signed between the investors and various state
governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West
Bengal.
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• According to the Investment Commission of India investments of over US$ 30
billion in steel are in the pipeline over the next 5 years.
• Tata Steel has raised US$ 500 million by issuing 'global depository receipts'
(GDRs) aiming at expansion of its Jamshedpur plant and overseas mining
projects.
• The state-owned Steel Authority of India Ltd (SAIL) will invest US$ 724.12
million to set up a 4-million tonne per annum steel mill at its Bhilai Steel Plant.
• SAIL is also planning to set up a 12-million tonne plant in Jharkhand.
• Stainless steel manufacturer and exporter, Varun Industries, is setting up a
US$ 171.63 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.
• India’s largest engineering conglomerate Larsen & Toubro (L&T) and state-
owned Nuclear Power Corporation of India Limited (NPCIL) have formed a US$
370.09 million joint venture for specialized steel and forging products.
Government Initiative
Subsequent to the recent fall in international prices of commodities and to protect
Indian producers, the Indian government has announced some changes in customs
duty rates, which were effective from November 2008.
The government has removed full exemption of customs duty on some industrial and
agricultural commodities. Iron and steel products like pig iron, spiegeleisen, semi-
finished products, flat products and long products are now subject to a basic custom
duty of 5 per cent ad valorem.
The Indian government plans to invest over US$ 350 billion in industries related to
infrastructure and construction which will give a fillip to the steel sector.
Moreover, in the Union Budget 2009-10, the government has made a 23 per cent hike
in allocation for highway development and US$ 1.034 billion increase in budgetary
support to Railways which will further promote the steel industry.
Road ahead
While the demand for steel will continue to grow in traditional sectors such as
infrastructure, construction, housing, automotive, steel tubes and pipes, consumer
durables, packaging, and ground transportation, specialised steel will be increasingly
used in hi-tech engineering industries such as power generation, petrochemicals,
fertilizers, etc. The new airports and railway metro projects will require a large amount
of stainless steel.
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According to an estimate, with the growing need for oil and gas transportation
infrastructure, a US$ 118 billion opportunity is waiting to be tapped by steel
manufacturers in the next five years. Indian steelmakers are set to make the most of
booming global demand for steel pipes and tubes with the government withdrawing
the 10 per cent duty on the exports of these products. According to a study by ICICI
Direct, Indian steel companies are likely to get 19 per cent of the total global demand
in the years to come.
_____________ ____ ____________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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