grp-13 - tata steel

8/3/2019 Grp-13 - Tata Steel

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Group: 13 | Sec -B



Demand in US and Europe weak due to recession and debt crisis

Steel demand in Europe is expected to remain weak This is evident

from the fact that construction activity in Europe fell by 3.1% yoy in June 2010.

Moreover, the austerity measures in the European economy are likely to suppress

demand from the Automobiles and Aerospace sectors Demand from China tapering off as China turns into domestic demand driven model

Demand from Industry expected to rise on back of strong economic growth and

investment in infrastructure

Steel prices are expected to firm up in the coming months, as a result of the heightened

demand due to the resumption of construction activity. The domestic steel prices will alsobe supported by the bolstering demand in automobiles and consumer durables in the

festive season.



THE BROWNFIELD EXPANSION PROJECT AT JAMSHEDPUR

Tata Steel is increasing its crude steelmaking capacity at the JamshedpurWorks from 6.8 mtpa to 9.7 mtpa via a 2.9 mtpa brownfield expansionproject.

THE GREENFIELD EXPANSION PROJECT AT KALINGANAGAR, ODISHAThe Kalinganagar Greenfield Integrated Steel Plant, Odisha will supplementthe production capacities of the Jamshedpur Works, producing flat productsin premium, value-added steel grades.

Performance Improvement Initiative

Reduction in Suspended Particulate Matter (SPM) from Coke Battery ² saving $40 mn by march 2012 Reducing Continuous Casting Machine (CCM) break-out and breakdown by

restoring caster condition - break-out rates fell from 0.15% to less than0.12%



Tata Steel has followed a low cost producer strategy

Recently it has started pursuing a differentiation strategy

Corus acquisition: Movement into the high value added steel products

Improvement in DOL

Consolidation in supply chain

High inflation -> High cost of raw materials

Capital investment in Greenfield and Brownfield projects in Jamshedpur andKalinganagar

Tata Steel believes in controlling the supply of raw materials through acquisitions

Divestment of unproductive assets

Reduction in debt

Retention rate: 0.6

Profit Margin: 25-30%

Asset turnover ratio: 0.5

Financial leverage ratio: 1.5



Rate of return for 10 year government bond=8%

Moody·s rating for India:Ba1

Default spread for Ba1: 2.4%

RFR=5.6%

Beta=1.2

K=16.42%

g=RR x ROE = 13.5%(Assuming 30% PM)

g=RR

xR

OE= 11.25%(Assuming 25% PM) Taking RFR=8%

K=18.75%



Ke = 16.4% (as calculated above)

Kd = 8% (long term interest rates)D/E = 0.68 (from historic data)

WACC = 13.01%

Assumptions for Calculating FCFF:-A period of high growth rate (g = 18%) starting from 2011-12 till 2014-15

A period of declining growth rate of 1 % from previous year starting from year 2015-

16 till 2019-20A period of constant growth of 12% afterwards

Hence PV of total FCFF = 67529.28 Cr Rs

Debt = 27333 Cr, Equity = 40196 Cr, Total shareholders = 90 CrShare Price = 412 Rs

Current Share Price: 608.7

Considering FCFF method we recommend that one should SELL this share.



COMPANY P/E (x) EPS (Rs)* MKT CAP (Rs m) 52-WEEK HIGH / LOW (Rs)

TATA STEEL 6.24 93.65 560,466 714 / 449

ADHUNIK METALIKS 16.74 4.6 9,509.42 127 / 71

BHUSHAN STEEL 8.95 48.64 92,450.93 545 / 299

ELECTROSTEEL CAST 6.66 4.41 9,590.11 56 / 28

HINDUSTAN ZINC 10.88 13.08 601,260.19 155 / 99

ISMT LTD 7.51 5.44 5,984.53 70 / 37

ISPAT INDS. NM -3.1 45,468.52 26 / 17

JINDAL STEEL & POWER 28.39 22.09 586,067.57 735 / 613

JSL STAINLESS 7.62 14.1 20,127.53 136 / 78

JSW STEEL 8.43 103.11 193,924.75 1,400 / 790

KALYANI STEELS 6.24 11.98 3,265.02 154 / 71

MAH.SEAMLESS 7.68 49.21 26,652.53 455 / 324

MUKAND LIMITED 6.88 6.39 3,213.18 87 / 40

SESA GOA LTD. 8.1 35.07 246,824.40 384 / 261

SAIL 11.12 11.82 542,941.08 234 / 130

UTTAM GALVA STEEL 18.84 5.65 14,466.11 172 / 101



Sell

Thank You

Method Recommendation

FCFF

Relative

DDMFCFE

Sell

Sell

HoldSell

grp-13 - tata steel

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