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Please refer to important disclosures at the end of this report 1

EBITDA 2,780 3,103 (10.4) 2,992 (7.1)

Margin (%) 31.2 39.5 (827)bp 31.6 (35)bp

Source: Company, Angel Research

Tata Steels Indian operations posted a

net sales growth of 13.3% yoy to `8,908cr mainly due to higher realizations

(+12.4% yoy to `51,530/tonne). Volumes, however, were flat yoy at 1.6mn

tonne. The EBITDA fell by 10.4% yoy to `2,780cr and margin slipped 827bp due

to higher input costs. The PAT fell by 20.6% yoy to `1,357cr due to lower other

income during 1QFY2013 compared to 1QFY2012.

EBITDA 3,403 4,423 (23.1) 3,179 7.1

Margin (%) 10.1 13.4 (334)bp 13.4 (334)bp

The companys consolidated net sales rose

marginally by 2.5% yoy to `33,821cr due to subdued performance from Tata

Steel Europe (TSE) where the volumes declined by 9.6% yoy to 3.21mn tonne. The

EBITDA/tonne for TSE operations fell drastically by 55.7% to $35 due to higher

power and employee costs. Consequently, consolidated net profit declined 59.0%

yoy to `598cr.

We continue to maintain our positive stance on Tata Steel

owing to its buoyant business outlook, driven by a) higher sales volume in

FY2014 on the back of 2.9mn tonne brownfield expansion project in

Jamshedpur, b) raw-material projects at Mozambique and Canada and c)

restructuring initiatives at TSE.

% chg 16.0 11.9 9.7 3.2

% chg - (40.0) (12.3) 30.2

EBITDA margin (%) 14.1 9.3 10.3 11.2

P/E (x) 6.4 18.9 8.1 6.2

P/BV (x) 1.1 0.9 0.8 0.7

RoE (%) 30.8 13.7 10.5 12.4

RoCE (%) 14.6 9.3 10.3 11.9

EV/Sales (x) 0.6 0.6 0.5 0.5

EV/EBITDA (x) 4.3 5.9 5.1 4.5


CMP `395

Target Price `481

Investment Period 12 months

Stock Info

Sector

Net Debt (` cr) 39,136

Bloomberg Code TATA@IN

Shareholding Pattern (%)

Promoters 31.4

MF / Banks / Indian Fls 28.7

FII / NRIs / OCBs 14.1Indian Public / Others 25.9

Abs. (%) 3m 1yr 3yr

Sensex 10.6 7.9 18.2

Tata Steel (2.6) (14.5) (12.4)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

10

17,691

5,366

TISC.BO

39,101

1.2

504/332

860,156

Tel: 022- 3935 7800 Ext: [email protected]

Tel: 022- 39357600 Ext: 6841

[email protected]

Performance Highlights

1QFY2013 Result Update | Steel

August 17, 2012

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Tata Steel | 1QFY2013 Result Update

August 17, 2012 2

Exhibit 1:1QFY2013 performance (Standalone)

- Consumption of Raw Material 2,003 1,573 27.4 2,399 (16.5) 8,003 6,251 28.0(% of Net Sales) 22.5 20.0 24.6 23.6 21.3

- Power& Fuel 548 459 19.3 460 19.0 1,804 1,405 28.4

(% of Net Sales) 6.1 5.8 4.9 5.3 4.8

- Staff Costs 859 687 25.1 936 (8.2) 3,047 2,837 7.4

(% of Net Sales) 9.6 8.7 9.9 9.0 9.7

Freight & Handling 482 406 18.6 464 3.9 1,704 1,541 10.6

(% of Net Sales) 5.4 5.2 4.9 5.0 5.2

- Other expenses 2,236 1,631 37.1 2,229 0.3 7,839 5,880 33.3

(% of Net Sales) 25.1 20.8 23.5 23.1 20.0

Total Expenditure 6,128 4,757 28.8 6,488 (5.5) 22,397 17,914 25.0

OPM (%) 31.2 39.5 31.6

Interest 454 227 100.0 514 (11.6) 1,925 1,736 10.9

Depreciation 354 285 24.2 290 22.2 1,151 1,146 0.5

Other Income 152 553 (72.5) 183 (17.0) 886 538 64.7

Exceptional Items 0 0 0 511 648

(% of Net Sales) 23.8 40.0 25.0 29.0 33.3

Tax 766 924 (17.0) 810 (5.4) 3,161 2,921 8.2

(% of PBT) 36.1 29.4 34.2 32.1 29.8


Result highlights - Standalone

Tata Steels Indian operations posted a net sales growth of 13.3% yoy to `8,908cr

mainly due to higher realizations. Net steel realizations increased by 12.4% yoy to

`51,530/tonne. However, volumes were flat yoy but declined 11.1% qoq to 1.6mn

tonne as power cuts affected the production of both long and flat products.

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August 17, 2012 3

Exhibit 2:Standalone realization up 12.4% yoy


Exhibit 3: Standalone top-line grew by 13.3% yoy


Tata Steels India operations EBITDA fell by 10.4% yoy to `2,780cr and EBITDA

margin slipped 827bp yoy due to rising costs of raw material and higher other

expenses. The EBITDA/tonne decreased by 27.1% to US$316. The other income

for the quarter fell by 72.5% yoy to `152cr because there was an exceptional other

income of stake sale in 1QFY2012 which was non-recurring in nature. As a result

the companys standalone PAT fell by 20.6% yoy to `1,357cr.

Exhibit 4:Quarterly performance trend (Tata Steel India)

Deliveries (mn tonne) 1.6 1.7 1.6 1.6 1.6 1.8 1.6

EBITDA (US$/tonne) 383 398 433 364 312 331 316


Exhibit 5:Standalone EBITDA margin stood at 31.2%


Exhibit 6:Standalone net profit dipped by 20.6% yoy


1.4

1.7 1.6 1.7 1.6 1.6 1.61.8

1.6

0

10,000

20,000

30,000

40,000

50,000

60,000

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

(`/tonne)

(mntonnes)

Sales volume (LHS) Realisation (RHS)

7,038 7,3978,341

7,860 8,1428,305

9,4798,908

0

5

10

15

20

25

30

0

1,000

2,000

3,000

4,000

5,000

6,0007,000

8,000

9,000

10,000

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

(%)

(`cr)

Revenue (LHS) yoy change (RHS)

38.1 36.8 39.533.2 30.7

31.631.2

0

5

10

15

20

25

30

35

40

45

0

500

1,000

1,500

2,000

2,500

3,000

3,500

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

(%)

(`cr)

EBITDA (LHS) Margin (RHS)

1,451

1,708

2,219

1,495 1,4211,561

1,357

(40)

(30)

(20)(10)

0

10

20

30

40

50

0

500

1,000

1,500

2,000

2,500

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

(%)

(`cr)

Net profit (LHS) yoy change (RHS)

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August 17, 2012 4

Exhibit 7:1QFY2013 performance (Consolidated)

- Consumption of Raw Material 15,050 14,894 1.0 16,564 (9.1) 65,745 53,283 23.4(% of Net Sales) 44.5 45.1 48.7 49.5 44.9

- Power& Fuel 1,391 1,209 15.0 1,274 9.1 4,915 4,015 22.4

(% of Net Sales) 4.1 3.7 3.7 3.7 3.4

- Staff Costs 4,782 4,232 13.0 4,722 1.3 17,229 15,840 8.8

(% of Net Sales) 14.1 12.8 13.9 13.0 13.3

Freight & Handling 1,736 1,594 8.9 1,761 (1.4) 6,660 6,390 4.2

(% of Net Sales) 5.1 4.8 5.2 5.0 5.4

- Other expenses 7,459 6,648 12.2 6,498 14.8 25,934 22,479 15.4

(% of Net Sales) 22.1 20.1 19.1 19.5 18.9

Total Expenditure 30,418 28,577 6.4 30,820 (1.3) 120,483 102,006 18.1

OPM (%) 10.1 13.4 9.3 9.3 14.1

Interest 969 738 31.4 1,128 (14.1) 4,250 3,956 7.4

Depreciation 1,308 1,151 13.7 1,093 19.7 4,517 4,415 2.3

Other Income 289 3,882 (92.5) 222 30.3 1,573 680 131.3

Exceptional Items 0 (3,887) - 0 - 3,362 3,046 -

(% of Net Sales) 4.2 19.4 3.5 6.5 10.2

Tax 899 1,123 (20.0) 977 (8.0) 3,636 3,246 12.0

(% of PBT) 63.5 17.5 82.8 42.4 26.8

Share of profit 41 28 - 200 (79.5) 268 66 -

Minority interest (40) (25) 60.8 (30) 32.5 173 60 187.2

(% of Net Sales) 1.8 16.2 1.3 4.1 7.6


Exhibit 8:Consolidated 1QFY2013 Actual vs Angel estimates

Net sales 33,821 32,297 4.7

EBITDA 3,403 3,327 2.3

EBITDA margin (%) 10.1 10.3 (24)bp

Adj. net income 598 985 (39.3)


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August 17, 2012 5

Result highlights - Consolidated

The companys consolidated net sales rose marginally by 2.5% yoy to `33,821crdue to subdued performance from TSE where the volumes declined by 9.6% yoy to

3.21mn tonne. The EBITDA/tonne for TSE operations fell drastically by 55.7% to

$35 due to higher power and employee costs as most of the costs are fixed in

nature for the European operations.

Exhibit 9:Quarterly performance trend (Tata Steel Europe)

Steel deliveries (mn tonne) 3.5 4.1 3.5 3.5 3.4 3.6 3.2

EBITDA (US $/tonne) 25 85 78 30 (44) 8 35


The interest costs in the quarter increased by 31.4% yoy to `969cr and other

income fell by 92.5% yoy to `289cr. Hence; the net profit declined 88.8% yoy to

`598cr. However, excluding exceptional items reported during 1QFY2012, the

adjusted net income fell by 59.0% yoy to `598cr.

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August 17, 2012 6

Investment arguments

Tata Steel has completed its 2.9mn-tonne expansion program at the Jamshedpurplant. The product mix constitutes 2.5mn tonne of hot rolled coil (HRC) and 0.3mn

tonne of slabs. We expect this expansion to contribute ~`2,500cr per annum to

the companys consolidated EBITDA once the new plant reaches optimum capacity

utilization.

Tata Steel is in the process of developing a coking coal mine in Mozambique and

an iron ore mine in Canada to enhance integration levels of TSE. The total capex

remaining for the Mozambique project is US$100mn150mn, while the Canadian

project will involve capex of CAD350mn. We expect these backward integrationprojects at Mozambique and Canada to boost TSEs earnings beginning

2HFY2013.

Odisha project could provide further upsides in the long term

Tata Steel is setting up a 6mn-tonne integrated steel plant (including cold rolling

mill) in two phases of 3mn tonne each for a capex of `34,500cr. Phase 1 of the

3mn-tonne plant is expected to be completed by CY2014. This project is expected

to have high returns on invested capital as it would be backed by captive iron ore.

Outlook and valuation

We continue to maintain our positive stance on Tata Steel owing to its buoyant

business outlook, driven by a) higher sales volume in FY2014 on the back of

2.9mn tonne brownfield expansion project in Jamshedpur, b) raw-material projects

at Mozambique and Canada and c) restructuring initiatives at TSE.

Exhibit 10:SOTP valuation

Tata Steel India 13,462 5.5 74,039

TSE 2,995 3.0 8,986

Other Asian operations 394 3.0 1,183

Net Debt 44,937

Cash 2,940

Investments 4,468

Market cap 46,678

Source: Angel Research

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August 17, 2012 7

Exhibit 11:EPS Angel forecast vs. consensus

FY2013E 48.6 43.86 10.9

FY2014E 63.3 59.27 6.8Source: Bloomberg, Angel Research

Exhibit 12:EV/EBITDA

Source: Bloomberg, Angel Research

Exhibit 13:P/E


0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

2x 4x 6x 8x 10x

(`mn)

(500)

0

500

1,000

1,500

2,000

2,500

3,000

Apr-05

Aug-05

Dec-05

Apr-06

Aug-06

Dec-06

Apr-07

Aug-07

Dec-07

Apr-08

Aug-08

Dec-08

Apr-09

Aug-09

Dec-09

Apr-10

Aug-10

Dec-10

Apr-11

Aug-11

Dec-11

Apr-12

Aug-12

(`)

4x 8x 12x 16x

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August 17, 2012 8

Exhibit 14:P/BV


Exhibit 15:Recommendation summary

SAIL 83 - Neutral 37,980 - 8.7 7.1 0.8 0.7 8.2 6.6 9.4 10.6 7.0 8.8

JSW Steel 721 - Neutral 15,991 - 9.0 8.1 0.9 0.8 4.9 4.8 10.4 10.6 10.1 9.3


Company background: Incorporated in 1907, Tata Steel is the world's tenth

largest steel company and the world's second most geographically diversified steel

producer with major operations in India and Europe. During April 2007, the

company acquired Corus (now Tata Steel Europe), the second largest steel

producer in Europe, for a consideration of US$12bn. Its India operations capacity

stands at 9.7mn tonne, while its European operations capacity stands at 16.0mn

tonne.

0

200

400

600

800

1,000

1,200

Apr-05

Aug-0

5

Dec-0

5

Apr-06

Aug-0

6

Dec-0

6

Apr-07

Aug-0

7

Dec-0

7

Apr-08

Aug-0

8

Dec-0

8

Apr-09

Aug-0

9

Dec-0

9

Apr-10

Aug-1

0

Dec-1

0

Apr-11

Aug-1

1

Dec-1

1

Apr-12

Aug-1

2

(`)

0.2x 0.8x 1.4x 2.0x

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August 17, 2012 9

Profit & Loss Statement (Consolidated)

% chg 12.4 (30.5) 16.0 11.9 9.7 3.2

Net raw materials 74,914 44,752 53,283 65,745 61,236 63,181

Other mfg costs 11,982 9,601 10,404 11,575 13,122 13,539

Personnel 17,975 16,463 15,840 17,229 21,870 22,565

Other 24,331 23,535 22,479 25,934 34,503 34,295

% chg 4.5 (55.6) 108.2 (25.9) 21.4 11.8

(% of Net sales) 12.3 7.9 14.1 9.3 10.3 11.2

Depreciation 4,265 4,492 4,415 4,517 5,531 5,447

% chg 5.0 (74.4) 247.3 (35.9) 20.7 19.6

(% of Net sales) 9.4 3.5 10.4 5.9 6.5 7.6

Interest charges 3,290 3,022 3,956 4,250 4,269 4,179

Other income 266 1,186 680 1,573 1,312 1,354

(% of PBT) 2.5 69.2 7.5 30.1 19.9 15.8

Share in profit of asso. - - - - - -

% chg 8.0 (84.2) 428.1 (42.3) 26.0 30.4

Extra. Inc/(Expense) (4,095) (1,684) 3,046 3,362 0 0

Tax 1,894 2,152 3,246 3,636 1,974 2,574

(% of PBT) 28.1 6,941.4 26.8 42.4 30.0 30.0

Add: Earnings of asso. 61 127 66 268 308 355

Less: Minority interest 41 (15) 60 173 190 209

Extra. Expense/(Inc.) - - - - - -

% chg (5.3) (124.3) (425.9) (65.8) 133.0 30.2

(% of Net sales) 5.1 (1.8) 5.0 1.5 3.2 4.1

% chg (63.7) (142.3) (472.2) (40.2) (12.3) 30.2

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August 17, 2012 10

Balance Sheet (Consolidated)

Equity share capital 730 887 959 2,355 2,355 2,355Reserves & surplus 26,984 21,927 34,605 42,050 45,987 51,286

Share warrants 17 17 17 40 40 40

Hybrid perpetual securities - - 1,500 2,275 2,275 2,275

Minority interest 895 884 889 1,091 1,282 1,491

59,901 53,307 53,045 49,937 47,437 44,937

Deferred tax liability 1,709 1,654 2,188 2,504 2,504 2,504

Other liabilities 1,042 964 5,431 5,523 5,523 5,523

Gross block 99,459 97,289 113,986 108,041 114,041 121,041

Less: Acc. depreciation 63,083 60,764 61,592 66,109 71,640 77,087

Capital work-in-progress 8,930 9,271 15,625 20,208 27,208 31,208

Goodwill 15,365 14,542 15,298 17,355 17,355 17,355

Investments 6,411 5,418 7,847 4,021 4,021 4,021

Cash 6,148 6,788 10,859 10,802 4,907 2,940

Loans & advances 13,016 6,761 3,547 3,869 3,869 3,869

Other 34,707 30,319 38,867 40,476 41,503 42,570

Mis. exp. not written off 577 - - - - -

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August 17, 2012 11

Cash flow statement (Consolidated)

Profit before tax 6,743 31 12,102 8,585 6,581 8,579

Depreciation 4,265 4,492 4,415 4,517 5,531 5,447Change in WC 6,910 8,443 (7,769) 262 (53) 578

Less: Other income 266 1,186 680 1,573 1,312 1,354

Direct taxes paid (1,894) (2,463) (3,235) (3,652) (1,974) (2,574)

(Inc.)/ Dec. in fixed assets (3,263) (198,882) (9,336) (9,664) (13,000) (11,000)

(Inc.)/ Dec. in investments (3,044) 194,182 1,752 7,571 - -

(Inc.)/ Dec. in loans and adv. - - - - - -

Other income (266) (1,186) (680) (1,573) (1,312) (1,354)

Issue of equity - 2,446 4,557 1,396 - -

Inc./(Dec.) in loans 6,308 (6,261) 5,309 (4,722) (2,500) (2,500)

Dividend paid (1,495) (1,321) (714) (1,164) (978) (1,061)

Others - - (3,179) (3,814) 499 564

Inc./(Dec.) in cash 14,530 667 3,902 (687) (5,895) (1,967)

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August 17, 2012 12

Key ratios

P/E (on FDEPS) 6.7 - 6.4 18.9 8.1 6.2P/CEPS 3.6 14.1 2.8 3.9 3.7 3.3

P/BV 1.2 1.5 1.1 0.9 0.8 0.7

Dividend yield (%) 4.5 - 3.3 1.9 2.5 2.8

EV/Sales 0.5 0.7 0.6 0.6 0.5 0.5

EV/EBITDA 4.4 9.5 4.3 5.9 5.1 4.5

EV/Total assets 0.9 1.0 0.7 0.7 0.7 0.7

EPS (Basic) 66.1 (24.9) 99.0 55.5 48.6 63.3

Adjusted EPS (fully diluted) 89.3 (20.5) 61.9 20.9 48.6 63.3

Cash EPS 109.8 28.0 139.7 102.0 105.6 119.4

DPS 17.8 - 12.9 7.7 10.1 10.9

Book value 330.2 257.3 370.9 442.9 483.4 538.0

EBIT margin 9.4 3.5 10.4 5.9 6.5 7.6

Tax retention ratio (%) 71.9 (6,841.4) 73.2 57.6 70.0 70.0

Asset turnover (x) 2.4 1.2 1.5 1.7 1.6 1.5

RoIC (Post-tax) 16.1 (285.0) 11.8 5.8 7.1 7.9

Cost of debt (post tax) 4.6 (412.4) 6.5 6.0 7.3 6.9

Leverage (x) 1.9 2.0 1.2 0.9 0.9 0.8

Operating RoE 38.4 (25.1) 18.0 5.6 7.0 8.7

RoCE (Pre-tax) 15.4 5.5 14.6 9.3 10.3 11.9

Angel RoIC (pre-tax) 33.9 22.9 37.6 13.6 35.4 37.8

RoE 16.0 (8.0) 30.8 13.7 11.3 13.2

Asset turnover (gross block) 1.5 1.0 1.1 1.2 1.3 1.3

Inventory (days) 53 66 73 69 69 69

Receivables (days) 32 41 45 40 40 40

Payables (days) 26 77 56 56 56 56

WC cycle (days) 52 44 20 10 4 3

Net debt to equity 1.9 2.0 1.2 0.9 0.9 0.8

Net debt to EBITDA 3.0 5.8 2.5 3.2 2.8 2.5

Interest coverage 4.2 1.2 3.1 1.9 2.2 2.7

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A t 17 2012 13

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment

decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

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Disclosure of Interest Statement Tata Steel

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

tatasteel_170812

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