Company Report | Q1FY12 Result Update

LONG TERM INVESTMENT CALL

22 August 2011
Industry CMP (INR) Target (INR) Upside / Downside (%) 52 week High/Low (INR) Market Cap (INR Mn) 3M Avg. Daily Volumes EV/EBITDA(FY13e) Shareholding Pattern (%) Steel 459 690 50 714/459 440,471 4049,070 4.8 Results Highlights

BUY

TATA Steel Ltd (TATA) reported its first quarter consolidated results for FY12 and has registered a net sales growth of 21.6% YoY to INR 328,399 mn which was ~9% above our estimates. Consolidated sales volume at 6.1 mn tonnes in Q1FY12 were 3.1% higher than the deliveries of 5.9 mn tonnes recorded in Q1 FY11. The jump in the top line was due to the higher sales volume at the Indian operation (1.59 mn tonne, 14% YoY growth) along with improved average realisation compared to the spot market. Revenue in Q1FY12 at INR 78,600 mn was 20% higher on YoY.The average realisation for the quarter has improved by 5.6% YoY. EBITDA at the Indian operation has increased by 6.7% on YoY with an EBITDA/ ton of USD 440. There is an one off gain of INR 5,110 mn from the stake sales in TATA Refractories Ltd, at its Indian operation.

Stock Performance
750 700 650 600 550 500 450 Aug Dec Nov May Aug Sep Jan Oct Feb Mar Apr Jun Jul

European operation with a turnover of INR 205,350 mn was 20.5% higher on YoY, on the back of higher realisation. The increase in the average realisation (23% on YoY) was partly off set by the lower volume. European operation at 3.5 mt has declined by 2.2% on YoY. High raw material cost has resulted in EBITDA decline of 10% on YoY at INR 12,220 mn with an EBITDA/ton of USD 78. However the company has registered a one off gain of INR 6,850 mn on the arbitration settlement of the TCP. Companys South East Asian operation almost remained flat during the quarter under review. Sales volume at NatSteel Holding is at 0.46 mn tonnes remained flat compared to deliveries in Q1 FY11. While Turnover in Q1 FY12 at INR 22,150 mn was up 27.1% YoY. EBITDA during the 3 Months -18.4 -10.7 1 Year -12.1 -12.5
(INR Mn)

TATA Steel

Nifty

Performance (%) 1 Month TATA -20.2 NIFTY -13.0

quarter has declined by 66% to INR 320 mn due to higher electricity cost and decline in the scrap/rebar price spread. However TATA Steel Thailand has posted sales volume growth of 7.6% on YoY while the turnover at INR 11,160 mn was up 28.0% on YoY. EBITDA in Q1FY12 at INR 570 mn was almost flat compared to INR 560 mn in Q1FY11.

* Source: Bloomberg, Unicon Research

Particulars Total Income EBIDTA Reported PAT

*Include One Off Gain

Actual 330,002 44,229 *53,466

Estimates 301,450 46,785 17,350

Consolidated net profit during the quarter has shown a growth of 192% on YoY to INR 53,466 mn. The robust jump in the PAT was all due to the extra ordinary income during the quarter. This includes stake sales in the TATA Refractories (INR 5,760), stake sales in Riversdale Mining (INR 49,420mn) and arbitration settlement at TCP (INR 5,980 mn).

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@uniconindia.in

Out Look & Valuation TATA Steel is continuously focusing on restructuring its business model with divesting its under performing assets. This would generate smooth cash flow for the the existing expansion plan and upcoming opportunity. FY12 capex is expected to be USD 1.8 bn in Indian operations and another USD 0.6 bn in European operation. The management has given a guidance for 9-9.2 mn tonne of steel for FY13. Companys brown field expansion at Jamshedpur is likely to be commissioned by March 2012 and expected to be commercialised by the Q2FY13. In addition to this the Mozambique coal project is expected to start by end of FY12 and expect 0.7 mt despatch in FY13, and gradually would rise to 1.5 mt. New Millennium iron ore is expected to be operational during 2014 with production over 1 mt in the first year. The company is passing through a phase of consolidation. There are uncertainty regarding the revival of the global economy but the company expects to perform well on the back of stable demand from the domestic market. At CMP the stock is available at EV/EBITDA of 4.8x its FY13e and PE multiple of 6x of its FY13e earnings. Considering the expansion plan and the demand scenario, we believe that the company has potential for improved performance. We recommend BUY on the stock and maintain our price target of INR 690.

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@uniconindia.in

Financials DESCRIPTION Net Sales Other operating income Total Operating Income Total Expenditure EBITDA EBITDA (%) Depreciation EBIT Other Income Interest Exceptional Items PBT Tax Profit After Tax Minority Interest Shares of Associates Consolidated Net Profit Net Profit (%) EPS
Source: Company, Unicon Research, *Consolidated Financial

(INR in mn)

Q1FY12 328,399 1,603 330,002 285,773 44,229 13% 11,508 32,721 38,823 7,377 0 64,167 11,230 52,937 248 281 53,466 14.5% 52

Q1FY11 270,101 1,836 271,937 227,609 44328 16% 10,439 33,888 593 5,976 -599 27,907 10,005 17,902 -65 416 18,253 6.7% 20

Y0Y 21.6% -12.7% 21.4% 25.6% -0.2% -290bps 10.2% -3.4% 6445.7% 23.4% -100.0% 129.9% 12.2% 195.7% -482.3% -32.5% 192.9% 780bps 164.8%

Q4FY11 334,427 3,800 338,227 293,566 44,661 13% 11,664 32,997 2,116 7,655 22,794 50,252 8,764 41,487 185 84 41,756 12.3% 44

QoQ -1.8% -57.8% -2.4% -2.7% -1.0% 20bps -1.3% -0.8% 1734.9% -3.6% -100.0% 27.7% 28.1% 27.6% 34.2% 235.0% 28.0% 223bps 19.0%

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@uniconindia.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@uniconindia.in