STRATEGIC FINANCIAL MANAGEMENT

CIA 1

VALUE BASED METRICS

OF
TATA STEEL

SUBMITTED BY:-
ANSHUMAN CHAURASIA
0921403
MBA-N
 BASE NUMBERS

2010 2009 2008 2007 2006 2005

           
17897.2
Net revenue 26046.76 25240.66 20279.55 5 15489.58  
Operating Income (EBIT) 8905.59 9176.44 8244.54 6913.75 5884.22  
Interest Income 1241.08 603.07 586.41 362.12 252.58  
Interest expense 1848.19 1489.50 929.03 251.25 168.44  
Income taxes 2168.50 2114.87 2380.28 2040.47 1734.38  

Net income 5046.80 5201.74 4687.03 4222.15 3506.38  

Depreciation and
amortization 1083.18 973.40 834.61 819.29 775.10  
Cash + Short term investment 500.3 463.58 465 446.51 288.35  
Other current assets 3512.58 4116.45 3148.46 2964.61 2714.15  
Gross property, plant & 13566.5
equipment (PPE) 35661.69 32371.87 25898.53 6 7012.26  
Accumulated Depreciation 10143.63 9062.47 8223.48 7486.37 6699.85  
2008.5
Land 5279.86 4792.79 3834.38 9 1038.19  
Other long term investments
(Incl intangibles) 44979.67 42371.78 4103.19 6106.18 4069.96  
23741.4
Total assets 62407.95 56650.78 45322.42 8 12271.45  
Short term debt 8699.34 8965.76 6842.26 6349.24 4552.39  
Other current liabilities 3303.68 2934.19 2913.52 1930.46 2361.44  
Long term debt 2259.32 3913.05 3520.58 3758.92 2191.74  
Other long term liabilitites 48145.61 40837.78 32046.06 11702.86 3165.88 435.45
Shareholders equity 214.75 214.75 214.75 214.75 214.75  
Number of shares
outstanding (adjusted for
stock splits) in crores 88.721 73.059 73.058 58.047 55.347 52.32
Cashflow from operations 8369.22 7397.22 6254.2 5118.1 3631.39  
Net investment (PPE+ other -
investments, net of disposals) 8817.68 9536.33 -22260.34 7906.89 -3230.65  
Share buy backs, net of new
issues 0 0 0 0 0  
Dividends 709.77 1168.95 1168.93 943.91 719.51  
Effective tax rate (in %) 30% 30% 30% 30% 30%  
Closing share price (in $) 632.65 206 693.15 397.36 461.56 400
PV of operating leases 0 0 0 0 0  
Operating lease expense 0 0 0 0 0  
WACC (in %) 9.52% 8.85% 12.64% 21.45% 31.49%  
Cost of equity (in %) 13.58% 17.51% 17.17% 29.95% 35.94%  
EPS (diluted) 56.37 69.7 63.85 72.74 63.35  
 NOPAT

2010 2009 2008 2007 2006

Operating Income (EBIT) 8905.59 9176.44 8244.54 6913.75 5884.22

(+) Interest Income 1241.08 603.07 586.41 362.12 252.58

Adjusted Operating Income 10146.67 9779.51 8830.95 7275.87 6136.80

Effective Tax Rate 0.30 0.30 0.30 0.30 0.30

Effective Tax Rate is the rate as stipulated by the IT
department
Tax based on effective tax rate 3044.001 2933.853 2649.285 2182.761 1841.04

Net Operating Profit less Adjusted Taxes

(NOPAT)
7102.67 6845.66 6181.67 5093.11 4295.76

Interpretation:-
 EBITDA RONA

Calculating EBITDA and RONA (Return on Net Assets)

2010 2009 2008 2007 2006
EBITDA

5884.2
Operating Income (EBIT) 8905.59 9176.44 8244.54 6913.75 2
(+) Depreciation & Amortization 1083.18 973.40 834.61 819.29 775.10

10149.8 6659.3
EBITDA 9988.77 4 9079.15 7733.04 2

RONA

4295.7
NOPAT 7102.67 6845.66 6181.67 5093.11 6
(/) Invested Capital
(total assets - Other current 59104.2 53716.5 42408.9 21811.0 9910.0
liabilities) 7 9 0 2 1

RONA 12.02% 12.74% 14.58% 23.35% 43.35%

Interpretation:-
 ECONOMIC PROFIT

2010 2009 2008 2007 2006

NOPAT 7102.67 6845.66 6181.67 5093.11 4295.76

(-) Capital Charges

(Invested Capital x WACC) 5625.086 4755.706 5361.67 4677.435 3120.42

Economic Profit 1477.58 2089.95 820.00 415.67 1175.34

Interpretation:-
 CASH VALUE ADDED

2010 2009 2008 2007 2006

NOPAT 7102.67 6845.66 6181.67 5093.11 4295.76

(+) Depreciation & Amortization

1083.18 973.40 834.61 819.29 775.10

(+) Changes in Other Long Term

Liabilities 7307.83 8791.72 20343.20 8536.98 2730.43

= Cash Basis NOPAT 15493.68 16610.78 27359.48 14449.38 7801.29

(-) Capital Charges 6590.478 5558.036 6401.347 6282.909 5230.04
(cash basis invested capital * WACC)

Cash Value Added (CVA) 11052.7

8903.20 4 20958.13 8166.47 2571.25

Interpretation:-
 MARKET VALUE ADDED

2010 2009 2008 2007 2006

Short Term Debt
8699.34 8965.76 6842.26 6349.24 4552.39
Long Term Debt
2259.32 3913.05 3520.58 3758.92 2191.74
Other Long Term Liabilities
48145.61 40837.78 32046.06 11702.86 3165.88
Market Value of Equity
56129.61 15050.2 50640.45 23065.67 25546.09
Market Value of the Firm
115233.88 68766.79 93049.35 44876.69 35456.10

(-) Invested Capital

59104.27 53716.59 42408.90 21811.02 9910.01
=Market Value Added
56129.61 15050.20 50640.45 23065.67 25546.09
Market Value of Equity

No. of shares outstanding

88.72142 73.05925 73.05843 58.04729 55.34729
(x) Closing share Price
632.65 206 693.15 397.36 461.56
=Market Value of Equity
56129.61 15050.2 50640.45 23065.67 25546.09

Interpretation:-
 TOTAL SHAREHOLDER’S RETURN

2010 2009 2008 2007 2006

Dividends Per Share 8.774472 16.00012 17.83187 16.64824 13.36543
=Dividends/ Avg No.of shares
outstanding

Ending Share Price -426.65 487.15 -295.79 64.2 -61.56

(-) Beginning Share Price

Total Gains -417.876 503.1501 -277.958 80.84824 -48.1946

Beginning Share Price 206 693.15 397.36 461.56 439

Total Shareholder Return (TSR) -202.85% 72.59% -69.95% 17.52% -10.98%

Interpretation:-
 ECONOMIC VALUE ADDED

2010 2009 2008 2007 2006

Unadjusted NOPAT 7102.67 6845.66 6181.67 5093.11 4295.76

Add Changes in Other Long Term Liab 7307.83 8791.72 20343.20 8536.98 2730.43
Interest portion of operating lease
payments(net of tax shield on
Add interest) 0 0 0 0 0

= Adjusted NOPAT 14410.50 15637.38 26524.87 13630.09 7026.19

Capital charges (adjusted invested

Less capital x WACC) 6590.478 5558.036 6401.347 6282.909 5230.04

EVA 7820.02 10079.34 20123.52 7347.18 1796.15

Interpretation:-
 EXCESS RETURN

2010 2009 2008 2007 2006

Ending Market Value of Equity 56129.61 15050.2 50640.45 23065.67 25546.09

Add Future value of dividends and
share buybacks, net of new
share issues 0 0 0 0 0

= Ending shareholder wealth 56129.61 15050.2 50640.45 23065.67 25546.09

Less Expected shareholder wealth 46397.42 42365.41 38919.72 34551.45 28450.22

= Excess return 9732.185 -27315.2 11720.73 -11485.8 -2904.13

Interpretation-
 CASH FLOW RETURN ON INVESTMENT

2010 2009 2008 2007 2006

STEP 1
Gross PPE 35661.69 32371.87 25898.53 13566.56 7012.26
Less Land 5279.86 4792.79 3834.38 2008.59 1038.19
= Depreciable Gross Assets 30381.83 27579.08 22064.14 11557.97 5974.06
/ Depreciation 1083.18 973.40 834.61 819.29 775.10
= Economic Life (in years) 28 28 26 14 8

STEP 2
Net Income 5046.80 5201.74 4687.03 4222.15 3506.38
Add Depreciation & Amortization 1083.18 973.40 834.61 819.29 775.10
Add Interest Expense 1848.19 1489.50 929.03 251.25 168.44
Add Operating Lease Expense 0 0 0 0 0
= Gross cashflow 7978.17 7664.64 6450.67 5292.69 4449.92

STEP 3
Depreciable Gross Assets (Gross
PPE - Land) 30381.83 27579.08 22064.14 11557.97 5974.06
Other Long term investments
Add including intangibles 44979.67 42371.78 4103.19 6106.18 4069.96
Add Cash plus short term investments 500.3 463.58 465 446.51 288.35
Add Other Current Assets 3512.58 4116.45 3148.46 2964.61 2714.15
Add Land 5279.86 4792.79 3834.38 2008.59 1038.19
Add PV of operating leases 0 0 0 0 0
Other current liabilities including
Less trade payables 3303.68 2934.19 2913.52 1930.46 2361.44
Gross Cash Investment 81350.5 30701.6 21153.4
= 6 76389.49 6 0 11723.28

STEP 4
Cash + Short term investments 500.3 463.58 465 446.51 288.35
Other current assets incl
Add inventories 3512.58 4116.45 3148.46 2964.61 2714.15
Add Land 5279.86 4792.79 3834.38 2008.59 1038.19
Add Other long term investments 44979.67 42371.78 4103.19 6106.18 4069.96
Less Other current liabiliities 3303.68 2934.19 2913.52 1930.46 2361.44

Terminal Value 50968.7

= 3 48810.41 8637.51 9595.43 5749.21
CALCULATION OF CFOI

0 -81350.6 -76389.5 -30701.7 -21153.4 -11723.3

1 7978.17 7664.64 6450.67 5292.69 4449.92
2 7978.17 7664.64 6450.67 5292.69 4449.92
3 7978.17 7664.64 6450.67 5292.69 4449.92
4 7978.17 7664.64 6450.67 5292.69 4449.92
5 7978.17 7664.64 6450.67 5292.69 4449.92
6 7978.17 7664.64 6450.67 5292.69 4449.92
7 7978.17 7664.64 6450.67 5292.69 4449.92
8 7978.17 7664.64 6450.67 5292.69 10199.13
9 7978.17 7664.64 6450.67 5292.69
10 7978.17 7664.64 6450.67 5292.69
11 7978.17 7664.64 6450.67 5292.69
12 7978.17 7664.64 6450.67 5292.69
13 7978.17 7664.64 6450.67 5292.69
14 7978.17 7664.64 6450.67 14888.12
15 7978.17 7664.64 6450.67
16 7978.17 7664.64 6450.67
17 7978.17 7664.64 6450.67
18 7978.17 7664.64 6450.67
19 7978.17 7664.64 6450.67
20 7978.17 7664.64 6450.67
21 7978.17 7664.64 6450.67
22 7978.17 7664.64 6450.67
23 7978.17 7664.64 6450.67
24 7978.17 7664.64 6450.67
25 7978.17 7664.64 6450.67
26 7978.17 7664.64 15088.18
27 7978.17 7664.64
28 58946.90 56475.05

CFROI = IRR OF THE CASH FLOWS

 Inflation Adjusted CFROI 10%

0 -81350.6 -76389.5 -30701.7 -21153.4 -11723.3

1 7252.88 6967.85 5864.25 4811.54 4045.38
2 6593.53 6334.41 5331.13 4374.12 3677.62
3 5994.12 5758.56 4846.48 3976.48 3343.29
4 5449.20 5235.05 4405.89 3614.98 3039.36
5 4953.82 4759.14 4005.36 3286.34 2763.05
6 4503.47 4326.49 3641.24 2987.59 2511.86
7 4094.06 3933.17 3310.21 2715.99 2283.51
8 3721.88 3575.61 3009.29 2469.08 4757.97
9 3383.52 3250.56 2735.71 2244.62
10 3075.93 2955.05 2487.01 2040.56
11 2796.30 2686.41 2260.92 1855.06
12 2542.09 2442.19 2055.38 1686.41
13 2310.99 2220.17 1868.53 1533.10
14 2100.90 2018.34 1698.66 3920.51
15 1909.91 1834.85 1544.24
16 1736.28 1668.05 1403.85
17 1578.44 1516.41 1276.23
18 1434.94 1378.55 1160.21
19 1304.49 1253.23 1054.74
20 1185.90 1139.30 958.85
21 1078.09 1035.73 871.68
22 980.09 941.57 792.44
23 890.99 855.97 720.40
24 809.99 778.16 654.91
25 736.35 707.42 595.37
26 669.41 643.11 1265.98
27 608.56 584.64
28 4087.58 3916.17

Interpretation:-
 FUTURE GROWTH VALUE

2010 2009 2008 2007 2006

Economic Value Added 7820.02 10079.34 20123.52 7347.18 1796.15

/ WACC in % 9.52% 8.85% 12.64% 21.45% 31.49%

= Capitalized Value of EVA 82167.05 113848.05 159169.87 34260.12 5704.32

Add Invested Capital (ending) 59104.27 53716.59 42408.90 21811.02 9910.01

Current Operations Value

= (COV) 141271.32 167564.64 201578.77 56071.14 15614.33

Market Value 115233.88 68766.79 93049.35 44876.69 35456.10

Current Operations Value
Less (COV) 141271.32 167564.64 201578.77 56071.14 15614.33

19841.7
= Future Growth Value -26037.44 -98797.85 -108529.41 -11194.45 8
MVA 56129.61 15050.20 50640.45 23065.67 25546.09
FGV as a % to Total Value -22.60% -143.67% -116.64% -24.94% 55.96%

Interpretation:-
 FREE CASH FLOW

2010 2009 2008 2007 2006

Cash Flow from Operations 8369.22 7397.22 6254.2 5118.1 3631.39

Add Interest Expense 1848.19 1489.50 929.03 251.25 168.44
-
Less Net Investment 8817.68 9536.33 22260.34 -7906.89 -3230.65

= Free Cash Flow 1399.73 -649.61 29443.57 13276.24 7030.48

Invested Capital (unadjusted) 59104.27 53716.59 42408.90 21811.02 9910.01

Add Accumulated Depreciation 10143.63 9062.47 8223.48 7486.37 6699.85

= Cash Basis Invested Capital 69247.90 62779.06 50632.38 29297.39 16609.86

Interpretation:-