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TATA STEEL
Imtiyaz Khanda
Neelam Gade
Ganesh Jaiswal
Mohammad Anwar
Shraddha Sangle
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Established in 1907 by Jamshetji N Tata in Jamshedpur.
Formerly known as Tata Iron and Steel Company Limited (TISCO).
28.1 million tonnes per annum of crude steel production capacity.
With Corus acquisition, TSL is worlds 10th largest steel producer.
Ranked Best Steel Maker by World Steel Dynamics in 2006, 2005
and 2001.
It is Asias First and Indias largest steel company in the private
Sector.
Headquartered in Jamshedpur, Jharkhand and registered office in
Mumbai.
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Tata Steel
Division
HotMetal
CrudeSteel
SaleableSteel
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ArcelorMittal
Essar Steel
N.V.Daido Steel Co., Ltd.Steel Authority of India Ltd.
Jsw Steel
Visa Steel, etc.
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Kaushal MehtaPrivate & Confidential 5
SubstituteProducts
Buyers
Potential new
Entrants
Suppliers Rivalry among
Competing sellers
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o What Exactly FDI is?
Foreign direct investment (FDI) is directinvestment into production in a country by a company locatedin another country, either by buying a company in the countryor by expanding operations of an existing business in thecountry. Foreign direct investment is done for many reasonsincluding to take advantage of cheaper wages in the country,special investment privileges such as tax exemptions offeredby the country as an incentive to gain tariff-free access to themarkets of the country or the region.
o FDI for Tata Steel : A top Obama Administration official on
Thursday praised Tata Steel as a shining example of foreigndirect investment (FDI) in the United States that has createdjobs in the economy.
o The significance of FDI, citing the Tata Steel as an example offoreign companies whose investments in the US strengtheneconomic growth and job creation
http://en.wikipedia.org/wiki/Tax_exemptionhttp://en.wikipedia.org/wiki/Tax_exemption7/31/2019 Final - Tata Steel (1)
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Financial Performance
Performance Indicator Grouping FY08 FY09 FY10 FY11
Shipments (kt) Consolidated 31,678 28,542 23,607 23,540
> Tata Steel India 4,782 5,232 6,169 6,416
> Tata Steel Europe 22,800 19,691 14,422 14,873
> NatSteel 2,493 2,369 1,779 1,803
> Tata Steel Thailand 1,433 1,112 1,198 1,290
Turnover (US$ m) Consolidated 29,502 33,045 22,966 26,635
> Tata Steel India 4,417 5,454 5,612 6,593
> Tata Steel Europe 22,478 24,575 14,768 17,044
> NatSteel 1,718 3,021 1,403 1,663
> Tata Steel Thailand 914 889 708 877
EBITDA (US$ m) Consolidated 4,101 4,148 2,095 4,398
> Tata Steel India 1,852 2,118 2,199 2,742
> Tata Steel Europe 2,039 1,997 -303 943
> NatSteel 51 63 56 68
> Tata Steel Thailand 113 33 31 12
Profit After Tax (US$ m) Consolidated 2770 1110 -451 2015
Basic EPS (US$) Consolidated 176.81 66.07 -24.92 99.03
The conversion rate used is US$ 1= 44.585 INR
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Consolidated Ratios
FY08 FY09 FY10 FY11
EBITDA/Turnover 14% 13% 9% 14%
PBT/Turnover 8% 7% 2% 8%
Return on Avg. Capital Employed 21% 16% 6% 14%
Return on Avg. Net Worth 51% 16% -8% 30%
Asset Turnover 108% 129% 98% 93%
Inventory Turnover (in days) 37 55 72 66
Debtors Turnover (in days) 28 39 44 40
Net Debt to Equity 2 1.7 1.8 1.6
Current Ratio 1.9 1.8 1.5 1.8
Interest Cover ratio 3.5 4.3 1.6 4.6
Dividend Payout ratio 11% 30% n.m. 15%
P/E Ratio (year end price) 3.9 3.1 n.m. 6.3
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Tata steel has presence in 50 countries with
manufacturing operations in 26 countries. It hasmanufacturing operations in these locations
Asia : India, Malaysia, Vietnam, Thailand, Oman.
(All through acquisition route) Africa : Ivory Coast, Mozambique, South Africa.
Australia : Central Queenland
North America : Canada
Europe : United Kingdom, The Netherlands,France
In india Tata steel in present in Jharkhand,Jhamshedpur, Chattisgarh,Orissa & Tamil nadu
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Emphasis on costs
Emphasis on operational efficiency
Ensuring cheaper resources
Enhancing revenue through better premiumin products
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Formula NPV = (CF/1+r) + (CF2/1+r^2).. +(TCF/r-g * 1/1+r^n-1)
where NPV Net present value
CF Cash flow.R Discount rate.
G Growth rate assumption in perpetuity.
TCF Terminal year cash flow.
N - No. of periods in the valuation model
including the terminal year.
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We have assumed the following ---
Growth in cash flows of 8% (years 1- 5) and5% (years 6-10).
Average cost of capital 15 % .
Expected growth rate after 10 yrs & till
perpetuity 1%.(limited iron ore & coking coal can be mined)
Based on these numbers and after reducing
the net debt (debt minus cash), the presentor discounted value of future cash flows forTata Steel is coming at Rs 560 per share,which is also the stocks intrinsic value usingthis method.
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Dividends are the cash flows that are
returned to the shareholders.
Formula for valuing a company with a
constantly growing dividend is --
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We have assumed the following
Discount rate of 15%.
Dividend growth rate of 12%.
Latest dividend of Rs 12 (2010 -2011)
Based on the above assumptions the intrinsic
value of Tata Steel based on DDM model is Rs400/-
Rs 12/ 15% - 12% = Rs 400/-
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Intrinsic Value as per NPV based on 10yr DCF
Rs 560 /-
Intrinsic Value as per DDM model Rs 400/-
So which model should we consider ???
For simplicity we use the avg. of both the
models & apply margin of safety.
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Average of both the intrinsic value comes to
Rs 480/- ( 560 + 400 /2).
We assume 25% margin of safety, which
comes to (480 * 25/100 = 120).
So Fair value after MOS =RS 360/-
(480 - 120).
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Fair value after margin of safety Rs 360/-
Current market price Rs 410/- (8th june
2012).Market price > Fair Value, so value investor
may want to avoid the stock at CMP.
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