Finance Restructuring

India
In-depth Report
17 April 2002 Restructuring In India -

Jyotivardhan Jaipuria
Head Of Research
The Tata Group
(91 22) 232 8658
jyoti_jaipuria@in.ml.com Transformation Of A Giant
Highlights:
• One of the enduring themes in India has been the restructuring effort of
some of the large corporate houses. We have looked at the Tata group as
probably the best example of a group that has gone through a great deal of
restructuring over the past few years and has survived the slowdown in
economy and the lower margins. We believe the Tata group’s restructuring
had three elements:
Strategy
1. Changing group ethos: Restructuring of the Tata group is more

interesting because prior to restructuring companies they tried to make
the group more cohesive and evolve a common set of values across the
companies.
2. Restructuring of companies internally: This included cutting costs and
improving efficiencies to make the companies globally competitive e.g.
Tisco is amongst the lowest cost producers of steel in the world, Tata
Tea has the world’s largest integrated tea operations, TCS is Asia’s
largest software services exporter.
3. Restructuring of the product portfolio of the group by identifying seven
core business areas and selling off businesses that did not fit within these
seven areas. (sell-offs include cement, pharmaceuticals, toiletries etc.).
• While investors could fault the pace of restructuring, willingness of the Tata
group to divest businesses is in contrast with most other business houses in
India. Having identified the business areas it wants to focus on, the group
has been aggressive in its capex plans and acquisitions (including
privatization such as VSNL and CMC) in these sectors.
• Another criticism of the Tata group has been the inability of some of the
key businesses of the group to earn a Return on Capital Employed (RoCE)
greater than the Cost of Capital. We believe:
1. The poor return partly stems from the economy-linked nature of the
business. Some of these businesses should show strong growth in
profitability and RoCE once the economy revives.
2. The group has been making a conscious shift away from commodity
business to brand businesses and services that have a more sustainable
return. This includes an aggressive thrust into knowledge-based
industries, as also more sophisticated products in existing commodity
business areas.
• From an investment perspective, Telco remains our top pick amongst Tata
group companies that we cover. A high leverage to improvement in the
economy and restructured operations should drive share prices, in our
opinion.
DSP Merrill Lynch Limited
Produced in conjunction with DSP Merrill Lynch Limited
an affiliate of Merrill Lynch & Co., Inc. Merrill Lynch, as a full-service firm, has or may have
Merrill Lynch & Co. business relationships, including investment banking
Global Securities Research & Economics Group relationships, with the companies in this report.
Global Fundamental Equity Research Department RC#03410701
Restructuring In India - The Tata Group – 17 April 2002
CONTENTS
n Section Page
Overview 1. Restructuring Initiatives - Successes & Challenges 3
Company Profiles
Tata Power Co. Ltd. (TPC) Investing In Light 9
Tata Iron & Steel (TISCO) Fighting Externalities 13
Tata Engineering & Locomotive Elephants Can Dance Too! 17

Co. Ltd. (Telco)
Tata Consultancy Services (TCS) Leading The Way 21
Tata Tea Ltd. Moving Into International Arena 25
The Indian Hotels Company Restructuring For A Better Tomorrow 29
2
1. Restructuring Initiatives - Successes &

Challenges
As the initial euphoria of opening up of the economy since 1991 subsided,
corporate India was hit by the negative effects of facing up to global competition.
Global deflation and reduced margins were soon to be the reality for corporate
India. As we have stated in our earlier strategy reports, corporate India was left
with only one option – restructure and cut costs or perish.
History is full of examples of industrial groups that thrived in the industrial
Raj but failed to adjust to the competitive era of a liberalized economy. On
the other hand, there were groups that restructured themselves and survived
and have prospered in the greater freedom that they now enjoy.
We have looked at the Tata group as probably the best example of a group
that has gone through substantial restructuring over the past few years and
has survived the slowdown in economy and the lower margins. It is now
trimmer and ready to venture into new areas. We believe the restructuring
of the Tata group had 3 elements:
1. Changing the group ethos: Restructuring of the Tata group is more
interesting because the issues were not only of adjusting to a different
economic environment but also of trying to make the group more
cohesive.
2. Restructuring of companies internally: This included cutting costs and
improving efficiencies to make the companies viable in the new economic
environment.
3. Restructuring of the product portfolio of the group by identifying seven
core business areas and selling off businesses that did not fit within these
seven areas.
Our views presented in this report are post discussions with most senior
executives in the Tata group including Mr. Ratan Tata and CEOs of the
companies included herein.
Initiation By Fire
In 1991, Mr. Ratan Tata took over as head of the Tata group in the backdrop of an
economy that was still euphoric from unlocking of the shackles of the industrial
licensing era. Yet, realization soon dawned on corporate India that more freedom
also meant more competition and they would need to restructure themselves and
be more focused to survive in the new age.
For Mr. Tata, the problem was more acute than that faced by other group heads.
The Tata group was a loose collection of companies enjoying much greater
autonomy from the group CEO than probably any other group in the country. He
had his task cut out for him. He had to:
• focus on changing the group culture as well as
• restructure the product portfolio of the group.
The proverbial chicken and egg problem was where to begin first. He chose to
focus on group culture first. This meanwhile gave the companies time to carry on
an internal restructuring exercise before the group could decide whether they were
adding value in the new economic circumstances or not.
Changing The Group Ethos

We believe this is always more difficult than selling product portfolios. The
process involved replacing existing managements in many companies with
younger and more dynamic management. It also brought about a more common
3
set of values across companies so that companies within the group thought and
acted like one. There have been four distinct changes in the Tata group culture
over the past few years:
1. Greater say in management of companies: The Tata group operated as a
confederation of loose entities where the professional management of each of the
Tata companies in operation had total control on the companies and ran it as their
fiefdom. However, they still fell back on the Tata name when it suited their
purpose like raising funds or asking the central Tata management for a bail-out.
There is now greater control on strategic decisions taken by the companies within
the Tata group including appointment of CEOs. However, management autonomy
enjoyed by professionals in the Tata group in day-to-day functioning of the
companies is still much higher than that in most other groups in India.
2. Raising ownership limits: The Tatas managed most of the companies with
very small stakes. One of the anecdotes a decade ago used to be the fact that the
Birlas had a higher stake in Tisco than the Tatas. While the brand name of the
Tatas ensured that there would be very little threat to loss of management control,
the Tatas decided to increase stake in most major companies. They now have a
stake of at least 26% in all major companies making it morally and legally easier
to manage them.
Table 1: Trend In Tata Shareholding

Tata Shareholding
March 1991 Present
Tisco 7.5% 26.4%
Telco 15.3% 32.2%
Tata Electric Companies 1.7% 32.2%
Source: Media
3. Creating a common brand equity: The Tata name has historically been
associated with a reputation for honesty and integrity. However, there was no
formal set of values running across the various companies in the group. There is
now a common code of operation in the group that is followed by all the
companies and reflects what the Tata brand name should stand for. This is both at
the company level (adopted by the Board of every company) as well as at the
individual level (agreed upon by every employee in the Tata group). We believe
inculcation of a common set of values that all companies follow has been the most
difficult task in the restructuring process.
4. Creating common standards: This involved having a common quality
standard, which each company would adopt, so that the consumer had the
assurance of getting a certain minimum from any Tata product.
Restructuring The Companies

For most investors this is the more visible and exciting part of restructuring of a
company or a group. However, we must remind investors that given the protected
nature of the economy, it was more important to create the psychological frame-
work so that there was minimal resistance to the changes that were being
implemented at the company levels.
n Companies Given Time To Restructure

As mentioned earlier, the group decided to carry out restructuring at the cultural
level before considering the product portfolio. This gave the companies time to
restructure and adjust to the changing environment. The restructuring in all
companies had a common theme – become globally competitive, gain the top 3
position in the market and work to ensure returns on capital employed higher than
costs. We highlight below some of the restructuring efforts in a few of the Tata
group companies. We have given details of companywise restructuring in some of
the larger Tata group companies later in this report.
4
One of the best examples of restructuring is probably Tisco which found itself
suddenly open to competition from global players. In the late 1990s, the company
sold off its cement business as well as its stake in Tata Timken in a move to
streamline its non-steel presence. In its steel business, the company undertook a
major restructuring program involving modernization of its facilities, changing
product mix to higher value products and cost cutting. The company has now
emerged amongst the lowest cost producers of steel in the world.
Telco has similarly been an example of a company that withstood the slowdown in
its business due to restructuring efforts. The restructuring effort was 3-fold -
divestment of non-core holdings, cost cutting and revamping of product portfolio.
The cost cutting initiatives included manpower reduction by nearly 30% and
material cost savings by value engineering efforts and rationalization of processes
and supplier base. The revamp of product portfolio through new offerings in the
multi axle vehicles helped wean market share away from Ashok Leyland.
We have seen similar restructuring efforts in the other Tata group companies.
Indian Hotels has shifted towards a lower capital employment strategy by
expanding through management contracts/joint ventures. It has, of course, also
reduced manpower and restructured global operations in the USA and Sri Lanka.
In Tata Tea, the acquisition of Tetley provides a global distribution reach to the
company and enhances its presence in the branded tea market. Tata Tea has the
world’s largest integrated tea operation. Tata Power is expanding into a national
energy company and has also firmed up plans to leverage its existing
infrastructure in the telecom space. TCS is Asia’s largest software services
exporter and is looking at growing both up the value chain as well as inorganically
(example: its acquisition of CMC).
Rationalizing The Product Portfolio

Restructuring of the product portfolio again was not an easy exercise, as can be
gauged by the fact that there was a need to start with the basic fact of taking an
inventory of the companies constituting the Tata group. The Tata group
comprised 85 companies (300 companies including all subsidiaries and associates)
in 45 industry groups. Of course, the ABC analysis works in the Tata group
companies also. Of the 85 companies, the 11 biggest account for 85% of the
revenues and 90% of the profits of the group. On a broad level, the group is
looking at cutting the number of companies to 40-45 in 14 business segments.
n Focus On 7 Core Businesses ….

The group has defined 7 core areas it will operate in as under:
Table 2: Focus Business Segments

Sectors Sub-sectors Main Companies
Engineering Automotive Tata Engineering, Tata Cummins, Tata Auto Component Systems
Engineering Products Voltas
Engineering Services Stewarts & Lloyds of India, Tata Korf Engg. Services, Tata Construction & Projects
Materials Metals Tata Steel, Tata SSL, Tata Refractories, Tata Sponge Iron
Composites Tata Advanced Materials
Energy Power Tata Power, Tata BP Solar India
Chemicals Chemicals Tata Chemicals, Tata Pigments
Consumer Products Consumer Goods Tata Tea, Tata Tetley, Tata Coffee, Titan Industries
Communications & IT Telecommunications Tata Telecom, Tata Teleservices, Tata Internet Services, Tata Elxsi
Information technology Tata Consultancy Services, Tata Infotech, CMC
Control Systems Tata Honeywell, Nelco
Services Hotels, Property Development Indian Hotels Company, Tata Housing Development Company
Financial Services Tata Finance, Tata-AIG general Insurance, Tata-AIG Risk Management, Tata-AIG Life Insurance
International Operations Tata International
Other Services Tata economic Consultancy Services, Tata Financial Services, Tata Strategic Management Group
Source: Tata group
5
n ….. And Getting Out Of The Rest

The group has embarked on a process of selling out of businesses that do not fit
within these seven core areas. The Tata group has been amongst the most ruthless
in terms of exiting from non-core businesses. This has included sale of some
businesses as well as selling out its stake to its MNC joint venture partners. We
list below some of the prominent examples of businesses sold:
• Toiletries (Tomco) and cosmetics (Lakme) to Hindustan Lever
• Cement - ACC to Gujarat Ambuja and Tisco to Lafarge
• Oil (Hitech Drillling) to Aban Lloyd
• Pharmaceuticals (Merind) to Wockhardt
• Paints (Goodlass Nerolac) to Kansai
• White Goods to Electrolux & UPS (Tata Liebert) to Emerson
• Stakes in bearings (Tata Timken) to Timken, IT (Tata IBM) to IBM and
telecom hardware to Lucent
n Future Focus On Knowledge-based Businesses

Apart from focusing on the identified seven core business areas, the group is
exploring prospects in the following ‘knowledge-based’ businesses:
• Information Technology – This will not only include computer services but
also design and application areas.
• Telecom – Here the group is interested only in being a service provider and
sees no role in telecom hardware.
• Convergence – In the IT/telecom convergence, the group will focus on
connectivity.
• Biotechnology – Here they would also like to explore convergence between
conventional and non-conventional medicines.
Within the seven core areas, the company will be exploring new and profitable
offshoots e.g. in metals they will look at opportunities in advanced metals and
composites.
The Report Card

We believe the restructuring of businesses has made the Tata group leaner and
more competitive. While investors do tend to criticize the pace as being too slow,
we believe the willingness to sell businesses and the divestment of businesses
exceeds that of any other group in India. Moreover, we believe the framework has
been laid for a more accelerated restructuring of the product portfolio. Another
criticism of the group has been the inability of some of the key businesses of the
group to earn return on capital employed (RoCE) greater than the cost of capital.
This is partly due to the economy-related nature of these sectors. We believe
returns will increase as the economy improves. However, some of these
businesses may still not earn adequate returns. The Tata group is therefore
shifting its focus from generic or product-driven businesses to brand-driven
businesses and services where returns may be more sustainable.
n Divestments And Acquisitions Accepted By The Group

Willingness to sell businesses: We believe the greatest positive of the Tata group
restructuring has been the willingness of Mr. Tata to sell out of businesses. While
this is commonly accepted in Western countries, in India, traditionally, asset
ownership was taken as a benchmark of power and progress amongst corporates.
Moreover, we believe this is not the end of Tata group restructuring but just the
beginning. We are likely to see more businesses being exited.
6
Greater aggression in the group: The group has traditionally been a conservative
group and has tended to be slow in decision making. There are enough signs,
however, that this has changed. Apart from some of the restructuring initiatives
highlighted above, the group has been an active bidder in the Government
privatization process. It has bagged two companies – VSNL and CMC amongst
tough competition.
Pace of restructuring – slow but irreversible: Investors have often raised
concern on the pace of restructuring. While in hindsight, we agree that the pace
could have been hastened, the bigger challenge was changing the mind-set of the
people internally so that they accept the restructuring process. We believe the
framework has been laid for a more accelerated restructuring of the product
portfolio. Second, it may be pointed out that portfolio divestment in the Tata
group exceeds that of any other group in the country.
n Shifting Group Focus To Knowledge-based Sectors

Inability of businesses to earn returns greater than cost of capital: Another
criticism has been the inability of some of the key businesses of the group to earn
return on capital employed (RoCE) greater than the cost of capital. Investors have
argued that the group would be better off by divesting these businesses. We
would, however, highlight 2 aspects to this:
• These businesses (steel, automobile etc.) are highly leveraged to performance
of the economy and the downturn in the economy has adversely hit returns.
The returns will increase once the economy bounces back.
• Second, given lack of an exit policy for industry, it is not possible to shut
down a large business even if it is unviable.
The Tatas for their part are making efforts to improve viability of all their
companies including adding new business areas or adding higher value products in
the same business line. A good example is Tisco where the company is looking at
newer metals (titanium) in an effort to increase returns.
Shift from generic-driven to brand-led businesses: The group has also been
making a conscious shift towards brand-driven businesses and services. In FY91,
brand businesses accounted for around one-fifths of sales. Now they account for
over one-half of sales. Moreover, the company has planned an aggressive thrust
into new economy businesses that will increase this trend even further ahead.
Chart 1: Sales Breakdown Of The Tata Group
FY00 FY01
Communications Services Materials Services Materials

Communications
& IT 10% 22% 11% 23%
& IT
9%
12%
Consumer Consumer
Products Products
Engineering Engineering 11%
13%
30% Chemicals Energy 27% Energy
8% 9%
8%
Chemicals
7%
Sources: Tata group
In terms of profits similarly, brand businesses and services are playing a more
significant role. While the commodity businesses are more cyclical, profits in IT
services have shown secular growth.
7
Table 3: Businesswise Breakdown Of Profits

FY2000 FY2001
PAT % of total PAT % of total
Materials 4213 21.2% 5631 51.3%
Consumer products 2231 11.2% 248 2.3%
Energy 4712 23.7% 3967 36.1%
Chemicals 1434 7.2% 1409 12.8%
Engineering 953 4.8% -5236 -47.7%
Communications & IT 4121 20.7% 7232 65.8%
Services 2212 11.1% -2267 -20.6%
19876 100.0% 10984 100.0%
Source: Tata group
n Need To Improve Human Resource Management

The group has traditionally been resistant to change. As a strategy they are now
recruiting younger people and providing greater mobility across functions. The
group has also been looking at drawing people from outside – there have been
recent high level hires from reputed companies signaling a change in strategy.
However, there is still a need to improve salary levels and provide a proper career
path for individuals.
n Greater Focus On Minority Shareholders’ Interests

One of the common investor concerns with the conglomerate groups across the
globe has been that they take decisions based on the interest of the group as a
whole without considering the interest of the minority shareholder in the
individual operating companies. Cross-holdings amongst group companies to
fund their expansion plan was common amongst all groups in India too.
The Tata group also has employed cross-holding in the past. Some of these have
been profitable for the companies that invested in them. Going forward, the
group’s plans in sectors such as telecom will mean that there is a need for some
companies to contribute to these ventures. However, to protect the interests of
minority shareholders:
• The Boards of each individual company will look at the investment as an
independent decision and its effect on the plans of their company.
• The Tata group would not ask the associate companies to invest in any bailout
package of any sister company e.g. following the Tata Finance fiasco, funding
was by Tata Sons and group companies did not participate in the bailout
• The group may consider offering shares to shareholders of Tata companies
directly in the new ventures.
One positive step towards protecting shareholder interests was the move of Tisco
not to invest in the telecom plans of the Tata group. However, balancing minority
shareholder interests against group financing plans is likely to remain a key
challenge going forward.
8
India
Electric Utilities
15 April 2002
Suhas Harinarayanan
(91 22) 232 8654
Tata Power Co. Ltd.
suhas_harinarayanan@in.ml.com
Investing In Light BUY*
Michelle Ring
Director
(65) 330-7210
Reason for Report: Company Overview Long Term
BUY
Price: Rs114.55 Highlights:

Estimates (Mar) 2001A 2002E 2003E • From a modest beginning as the sole generator
Net Income (mn): 3896 4627 5319 of electricity for Mumbai, Tata Power has
EPS: 19.70 23.39 26.89 grown aggressively into a national player with
P/E: 5.8x 4.9x 4.2x
EPS Change (YoY): -6% 18.7% 15.0%
interests in energy and communications
Cash Flow/Share: 30.04 38.18 45.84 infrastructure.
Price/Cash Flow: 3.8x 3.0x 2.5x • As part of its aggressive growth plans, the
Enterprise Value/EBITDA: 4.8 4.4 3.4
Gross Dividend: 5.0 5.01 5.01
company has worked assertively on its capex
Gross Yield: 4.4% 4.4% 4.4% plan to utilize its surplus cash including
Opinion & Financial Data
investments in telecom and a possible
acquisition of Enron’s stake in DPC plant.
Investment Opinion: C-2-2-7
Volatility Risk: Above Average • We believe the key challenges facing the
Mkt. Value / Shares Outstanding (mn): Rs22,680.9 / 198 company are:
Book Value/Share (Mar-2001): Rs191.00
Price/Book Ratio: 0.6x a) making a success of its telecom investments
ROE 2002E Average: 11.7% (including its stake in VSNL) in the wake of
LT Liability % of Capital: 38.3%
Est. 5 Year EPS Growth: 12.0% crashing broadband prices and intense
2002E P/E Rel. to Home Mkt: 0.4 competition from Bharti and Reliance. Its
Stock Data telecom plans, we believe, are still evolving.
52-Week Range: Rs148.75-Rs90.00 b) funding a probable purchase of the Dabhol
Symbol / Exchange: TPWFF / Bombay Power Company (DPC), which will multiply
Bloomberg / Reuters: TPWR IN / TTPW.BO its exposure to the SEBs (currently at only 5%
Exchange Rate: INR48.8600/USD of its assets), apart from identifying a
Free Float: 65%
Average Daily Turnover (th): 301 probable buyer for the generated power.
*Intermediate term opinion last changed on 09-Oct-2001. • YTD, the stock has underperformed the BSE-
For full investment opinion definitions, see footnotes.
All figures are in local currency (Indian rupee) except where otherwise noted.
30 by 13% (absolute return of 5%) and at
current valuations, continues to trade at 40%
discount to regional peers. We reiterate BUY.
Stock Performance
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Merrill Lynch, as a full-service firm, has or may have 110
business relationships, including investment banking 100
relationships, with the companies in this report. 90
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an affiliate of Merrill Lynch & Co., Inc.
Merrill Lynch & Co. Tata Power Adj. BSE Sensex
Global Securities Research & Economics Group
Global Fundamental Equity Research Department
9
From A Mumbai Power Generator To Its expression of interest in bidding for the foreign equity
in Dabhol exemplifies the new aggressive stance of the
A National Leader In Energy company. It has also expressed interest in bidding for the
Tata Power had its origins as the licensee for electricity distribution circles (Delhi, Kanpur, Karnataka) that are
generation, transmission and distribution for the city of being privatised. We would be looking at the Dabhol bid
Mumbai. In the late 90s, the company embarked on an in greater detail later in the report.
aggressive strategy with the aim of becoming a national
player in energy and communications infrastructure. This n Entry Into Telecom
involved: The company does not plan to enter the telecom services
• Expansion of its existing power business outside business but restrict itself to infrastructure facilities in the
Mumbai telecom business. In pursuit of its strategy, it has already
established a Mumbai-wide OFC network of approx.
• Thrust into the new areas of telecom, oil and gas. 485km. In addition, it has won the bid to use the right-of-
way (RoW) of BEST. It has, under wraps, a plan to
What Drove The Change? expand its broadband services in other cities in pursuit of
its ambition to launch an all-India network.
We believe the driving force behind the company’s
aggressive growth strategy is the man at the helm, Mr. Adi The company has also invested Rs6bn as its share towards
Engineer. We highlight two key elements of change: the purchase of VSNL by the Tata group. The company’s
telecom plans, we believe, is still evolving especially post
More aggressive strategies: This is reflected in most of the acquisition of VSNL and will likely be in line with the
the actions of the company, whether it is aggressive game plan of the Tata group in telecom.
implementation of its telecom capex plans or bidding for
the Right of Way (RoW) in Bombay or for the Enron n Energy Business
power project.
The company’s ambitions in the oil and gas business are
Use of surplus cash for company expansions: Tata being undertaken through Tata Petrodyne, its 100%
Power has been amongst the most durable cash generation subsidiary. Tata Petrodyne has between 10% to 15%
businesses of the Tata group of companies. But it invested participatory stakes in different oil & gas exploration and
the surplus cash in other group companies that were not production consortiums. Estimated capex is Rs1bn in
symbiotic with its core business. Mr. Adi Engineer has FY02 towards developing the Lakshmi gas project that is
now initiated a welcome change by investing the surplus expected to begin commercial production in July 2002.
cash in businesses that collaborate well with Tata Power’s
corporate vision of becoming a leader in the energy and
communications infrastructure. By emerging from the Key Challenges
limits of its licensee business in Mumbai, Tata Power is a) Funding asset building plans: The company has
embarking on a more exciting growth phase, in our view. traditionally been a surplus cash company and has a
huge cash reserve. However, given aggressive capex
plans, the company is likely to see increased funding
Implementation Of The Strategy requirements that will mean increased debt burden and
n Expansion In Power Outside Mumbai could even lead to an expansion of the equity base.
b) Enron integration can be a challenge: The company
The company has already added 464MW of new CPP/IPP
is one of the bidders for Enron’s stake in the DPC
capacity while limiting exposure to SEBs at below 5% (see
In-depth research publication on Tata Power: Defensive plant. A successful bid will be the start and not the
end of Tata Power’s challenges. Two key challenges
Growth, 10 October 2001 for details).
in integrating Enron within the company would be:
Table 1: Tata Power’s Generation Assets • Fund raising: The bid for Enron’s stake is likely
to mean an investment of over half a billion
Installed Capacity Year of Commercial dollars. This is equal to the present market cap of
Facility (MW) Operations Type
the company and would mean a substantial equity
Thermal (Mumbai) 1330 1965 Thermal
dilution to maintain corporate leverage.
Hydel (Mumbai) 452 1910 Hydel
Jojobera (CPP) 308 1995 Thermal • Increased SEB exposure: Tata Power’s current
Wadi (CPP) 75 1999 Thermal exposure to State Electricity Boards (SEBs)
Belgaum (IPP) 81 2001 Thermal stands at only 5% of its assets. Its exposure to the
Total 2,256 troublesome SEBs will multiply post Enron
Source: Tata Power depending on the sales contracted to MSEB.
However, we expect the take-over contract to
build sufficient safeguards to reduce credit risk to
Tata Power.
10
c) Regulatory risk: Future expansion in power is redrafting of the above plans, as VSNL comes with its own
largely dependent on the pace of reforms in the sector, infrastructure, a free NLD license and is a completely
which unfortunately, has been slow until now. The debt-free company. The company’s telecom plans are still
Government has recently taken some encouraging evolving post the acquisition and we believe that it will
measures to improve the health of the SEBs and open track the group strategy on telecom but will largely be
up the transmission sector for private investors. restricted to the infrastructure portion of the telecom space.
d) Profitability of telecom business: With increasing Besides direct investments in the infrastructure segment of
investments in the telecom business, the company’s telecom space however, Tata Power is also indirectly
future profitability will become more volatile. First, exposed to the services part through its investments in
the telecom business has a high gestation period. other group companies involved in telecom.
Second, increasing competition is likely to erode
• Tata Power currently has a 49% stake in TTSL, which
pricing power and margins. As an example,
has the license to provide wireline services in 15
broadband backbone tariffs have crashed 50% in the
states. Operations are already ongoing in 2 states -
last one year. Third, the telecom plans of the
Andhra Pradesh and Maharashtra.
company are linked to that of the whole group. The
plans are still evolving and to that extent could see • Tata Power is a 40% stakeholder in the Tata group
variations in the coming months. entity that emerged as the strategic partner for VSNL.
It has invested approx. Rs6bn as its share of the
Below, we outline in detail developments in the two most
investment into VSNL.
important growth plans at Tata Power – telecom and the
Dabhol acquisition.
Acquisition Of Dabhol
Telecom Thrust Tata Power has expressed interest in acquiring the foreign
stake (Enron, GE, & Bechtel together hold 85%) in Dabhol
Tata Power’s telecom plan is premised on the utility’s
Power Corporation (DPC). The Dabhol project is a
ability to leverage off its existing infrastructure. This it
US$3.1bn project, with debt of US$2bn and equity of
proposes to do in the role of a “carrier’s carrier”. This
US$1.1bn and has been put to sale owing to the inability of
means leasing out existing infrastructure to telecom
the contracted consumers, the Maharashtra State
companies and not being directly involved in the service
aspect of the business. The company’s stated telecom Electricity Board (MSEB) to pay for the power supplied.
plans are as follows. n Financing Will Be A Challenge
Stage I: To grow within Mumbai where it has the right-of-
The project will be an investment in the books of the
way (RoW) for 1,200km. 485km of optic fiber cables
bidders and consequently, the lenders to DPC will not have
(OFC) have already been laid, customers have already
recourse to the balance sheet of the companies.
been signed for 50% of the network and 30% of fibers lit.
Customers signed include Bharti, Orange, Satyam, and However, financing is likely to be a challenge for Tata
Hathway. The venture received a boost when Tata Power Power with the minimum outgo likely to be half a billion
won a competitive bid for the BEST RoW (in south dollars, close to market capitalization of the company. We
Mumbai) to lay OFC using electric poles owned by BEST. believe if Tata Power is successful in winning Enron, it
will require a substantial equity dilution. However, a
Stage II: To expand to other metros — Chennai, Delhi,
successful Enron bid could transform the size of the
Hyderabad and Pune. The venture will be symbiotic with
company into a much larger player both in the power
the efforts of Tata Teleservices Ltd. (TTSL), the fixed
sector as well as on the stockmarkets.
service provider in these circles. Pune operations will
kick-off by end-2002 while the other cities will be n BSES As A Customer – The Other Challenge
operational in FY2003.
BSES bought approx. 2,896mn units (approx. 50% of its
Stage III: Finally, a 'busy route highway' to link these total sales) from Tata Power in 2001. If BSES buys DPC
cities. This will see the company forming partnerships and or when the Electricity Bill 2001 comes into force, BSES
relationships with other players in the arena apart from may attempt to reduce power purchase from Tata Power.
building its own network. We do not foresee such a scenario, as the interests of the
By 2002-03, the company expects to have 5,500km of licensees (Tata Power has the license to generate, transmit
backbone through a mix of new, bought and swapped and distribute power for Mumbai city until 2014), we feel,
assets. Tata’s use of its existing infrastructure and right- would be protected in either case.
of-way should make the cost of entry into the
telecommunications business relatively low (company
estimates costs to be 15-20% lower than for a new
network). Meanwhile, the acquisition of VSNL by the
Tata group, we believe, could result in significant
11
Chart 1: Sales Of Tata Power To BSES

Table 4: Cash Flow Estimates (Rsmn)
120% 5,000
4,500 Year to Mar 2000A 2001A 2002E 2003E
100% 4,000 EBIT 6,165 5,908 7,147 8,434
3,500
80% (Net other income) 475 (637) (1,184) (1,596)
3,000
mn KWh
60% 2,500
Add:depreciation 2,018 2,046 2,926 3,748
2,000 Less:taxation (1,944) (1,375) (1,336) (1,519)
40% 1,500 Less: misc. exp 14 (495) 0 0
20% 1,000 Net change in working (2,202) 2,355 (732) (748)
500 capital
0% -
Net funds from operation 4,527 7,801 6,821 8,318
FY95 FY96 FY97 FY98 FY99 FY00 FY01
Issue of equity 6 (270) 0 0
Inc/(dec) in debt 801 1,778 (1,398) (1,940)
TWPR to BSES (RHS) % of total sales of BSES (LHS)
(Dividend paid) (921) (1,035) (1,090) (1,090)
Net cash from financing (115) 474 (2,487) (3,030)
Source: BSES, ML research
(Addition to fixed assets) (3,098) (10,290) (6,975) (4,422)
(Inc)/dec in investments (3,379) 12,556 (4,596) 408
Net cash from investing (6,477) 2,266 (11,572) (4,013)
Table 2: Earnings Model (Rsmn) Merger related adjustments (710)
FY00A FY01A FY02E FY03E Total inc/dec in cash & eq. (2,065) 9,831 (7,238) 1,275
Sales 27,895 33,304 38,448 44,923 Source: Tata Power, Merrill Lynch
% chg. Y-o-Y 21% 19% 15% 17%
EBITDA 8,183 7,954 10,073 12,182
EBITDA margin 29.3% 23.9% 26.2% 27.1%
Interest (2,800) (3,109) (3,164) (3,036)
Depreciation (2,018) (2,046) (2,926) (3,748)
Other income 1,695 1,545 1,631 1,439
Extraordinary inc/(exp.) 1,580 927 350 -
Profit before tax 6,640 5,271 5,963 6,838
Profit after tax 4,696 3,896 4,627 5,318
Distributable profits 4,185 3,633 4,019 4,644
Reported EPS 20.9 19.7 23.4 26.9
EPS % chg. 42% -6% 19% 15%
Distributable EPS 18.6 18.4 20.3 23.5
ROE 13.6% 10.5% 11.7% 12.3%
Interest cover x 2.9 2.6 3.2 4.0
Source: Tata Power, Merrill Lynch
Table 3: Balance Sheet (Rsmn)

FY00A FY01A FY02E FY03E
Net fixed assets 28,558 36,000 40,137 40,841
Total investments 27,608 15,052 19,648 19,240
Total current assets 17,626 25,198 19,643 22,952
Total assets 73,791 76,250 79,428 83,034
Long-term debt 23,279 24,560 23,069 20,929
Short term debt 2,141 1,835 2,015 2,246
Total current liabilities 12,048 12,145 13,097 14,383
Total debt 37,468 38,540 38,181 37,558
Tangible net worth 36,323 37,710 41,247 45,475
Liab & owners equity 73,791 76,250 79,428 83,034
BV per share 161 191 209 230
Net debt/equity 0.7 0.4 0.5 0.4
Source: Tata Power, Merrill Lynch
12
India
Steels
15 April 2002
Reena Verma
Vice President
Tata Iron & Steel (TISCO)
(91) 22 232-8667
reena_verma@in.ml.com Fighting Externalities NEUTRAL*
Reason for Report: Company Overview Long Term

BUY
Price: Rs99.95 Highlights:

Estimates (Mar) 2001A 2002E 2003E • Tisco has actively changed with the times to
Net Income (mn): 5385 2339 3177 emerge as one of the most cost competitive
EPS: 14.64 6.36 8.64 producers of steel, globally.
P/E: 6.8x 15.7x 11.6x
EPS Change (YoY): -56.6% 35.8% • Plant modernisation, product upgradation,
Cash Flow/Share: 35.80 27.37 31.33 and right-sizing of manpower have been the
Price/Cash Flow: 2.8x 3.7x 3.2x focus of the company’s efforts towards
Gross Dividend: 5.00 5.00 5.00 improving returns.
Gross Yield: 5.0% 5.0% 5.0%
• However, rising trade barriers across global
markets and subsidisation of the domestic
Investment Opinion: D-3-2-7
Volatility Risk: High
industry by lenders continue to threaten
Mkt. Value / Shares Outstanding (mn): Rs36,781.6 / 368 TISCO’s profitability.
•
Book Value/Share (Mar-2001): Rs104.00
Price/Book Ratio: 1.0x After having successfully exit non-core
ROE 2002E Average: 13.3% investments viz. cement, Tata Timken, the
LT Liability % of Capital: 47.9% company has been evaluating profitable
Est. 5 Year EPS Growth: 10.0%
2002E P/E Rel. to Home Mkt: 1.2 growth avenues given the difficult external
environment for steel.
Stock Data
52-Week Range: Rs138.00-Rs66.90
• The company is evaluating investment
Symbol / Exchange: TTISF / Bombay
opportunities in areas like titanium mining
Bloomberg / Reuters: TISCO IN / TISC.BO and telecoms versus further expansion in steel.
Exchange Rate: INR48.8600/USD We believe the company will take a considered
Free Float: 73% decision regarding future growth plans.
Average Daily Turnover (th): 668
*Intermediate term opinion last changed on 16-Jul-2001. • Continuous focus on cost competitiveness,
For full investment opinion definitions, see footnotes. room for further product upgradation and a
healthy balance sheet, are key drivers of our
long-term Buy rating on the stock.
Stock Performance
150
140
130
120
relationships, with the companies in this report. 90
80
70
DSP Merrill Lynch Limited 60
May-01
Oct-01
Nov-01
Dec-01
Apr-01
Jun-01
Jul-01
Aug-01
Sep-01
Jan-02
Mar-02
Apr-02
Feb-02

Merrill Lynch & Co.
TISCO Adj. BSE Sensex
13
What Has Changed? Despite being one of the oldest steel companies in India,
the average age of TISCO’s plants is currently at 7-8 years.
Changing With The Times The benefits of modernisation have been comprehensive in
terms of cost-heads and products:
Over the past two decades TISCO has undergone structural
change in response to the changing dynamics of the • Raw material consumption has steadily declined from
domestic and global steel industry. about 4.8t/t of steel in FY91 to 3.6t/t of steel in 1H 02.
Until 1980, the Indian steel industry was characterized by • Labor productivity has improved from 79t of saleable
absence of any material competition, low/ no import steel produced per man year in FY95 to 182t in FY01.
threats given the high duty structure and assured margins • Energy consumption has fallen from 8.72 Gcal/MT to
as the industry worked on a cost plus pricing structure. 7.4 Gcal/MT over the past five years. Refractory
The focus of the players was only to keep on with consumption has nearly halved from 18.5 kg/MT to
production with little focus on quality or branding. The 9.8 kg/MT.
market was oligopolistic in nature with little or no product
differentiation. Both the big and the small players thrived • The share of higher-value flat products has risen from
in this ‘sellers’ market. 14% in FY93 to 62% currently.
A key highlight of TISCO’s modernisation program is that
n Liberalization Spurs Company To Change the efficiency improvements have been consistent through
the last ten years. Also, it is very creditable that despite
The scenario changed with economic liberalization. From the high pressure of investments TISCO has steadily
1980 onwards, the government began to encourage market lowered its financial gearing from 1.5x FY93 to around 1x
reforms in all sectors including steel – a process that is still currently. In terms of balance sheet strength, we think
underway. Cost competitiveness became a necessary pre- TISCO is a clear winner in the Indian steel industry.
condition to survival as the industry integrated with global
markets. Both the preservation of domestic market share n Technology - A Key CRM Tool
against imports and the capturing of export markets hinged
on cost competitiveness. Customer relationship management (CRM) is becoming
increasingly important at TISCO, driven partly by its shift
Recognising the shift from a sellers’ market to a buyers’ towards higher value products. Most of the higher value
market, TISCO set forth three clear objectives towards products involve channel disintermediation; product-
gaining a leadership position: customisation and need for improved inventory
1. Become one of the most cost competitive producers, management are a natural fallout.
globally. Technology has been at the forefront of TISCO’s efforts to
improve customer service and manage associated
2. Build strong customer relationships and establish a inventory risks. TISCO has adopted SAP and has also
brand identity for its product. extended the same to key customers towards 'locking in'
3. Identify new areas that would enhance overall the customer. TISCO is also working on e-Commerce
profitability of the company. initiatives to attract customers.
n Tata Steel – Globally Cost Competitive

Key Challenges
Towards achieving cost efficiencies and customer
retention, TISCO undertook a massive modernization n Prolonged Downturn In Global Steel Prices
program. This program spanned nearly 2-decades and
Global cost competitiveness provides TISCO significant
soaked up investments to the tune of Rs95.7bn.
maneuverability versus industry peers but does not entirely
The results are obvious – on a global comparison, insulate the company from vagaries of global price cycles.
TISCO’s direct costs of production are amongst the lowest Consequently, TISCO’s profitability is unlikely to escape
(Table 1). any prolonged downturn in global steel prices.
Table 1: Cost Of Steel Vs Global Players

TATA STEEL
CSN THYSSEN POSCO NIPPON 00-01 H1 2001-02 NUCOR SAIL
Coke 86 120 65 107 56 56 99
Sinter 20 29 30 29 15 15
Hot metal 104 129 87 119 73 75 106
Liquid steel 146 172 123 160 109 109 150 154
HR coil 200 242 154 221 153 151 192 233
Source: Company, ML estimates
14
Currently, global steel prices are close to their 10-year n Investment Plans – At Crossroads
lows, and in many markets, prices are hovering close to the
In the late 1990s, TISCO sold its cement business and also
cash cost levels of major producers. This makes a sharp
exit from investments in Tata Timken in a move to
further fall in prices appear unlikely. However, we do not
streamline its non-steel presence. However, the company
expect prices to recover in the near term owing to
has been evaluating profitable growth avenues given the
continued overcapacity in the industry and persistent
difficult external environment for steel.
financial support (by lenders and governments) to
inefficient producers. In FY01 Tisco announced plans to evaluate the growth
opportunity in areas of telecom, ferro-chrome and titanium
Chart 1: Global Steel Prices Are At A 10-year Trough mining. In the near term, we do not foresee any dramatic
investment in these areas owing to two reasons:
700
1. Weak outlook for free cash generation from existing
600 operations.
500
2. Poor experience with diversification in the past.
400
Tisco is also evaluating further expansion of its steel
300 capacity through the brownfield route. While TISCO’s
200 own capacity utilisation has been close to peak levels, we
think TISCO should wait for an improvement in the
100
domestic industry’s supply-demand imbalance before
Jan-92
Jan-93
Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
making fresh cash commitments. In the interim, we think

TISCO could consider increased dividend payout or share
HRC Price - US$/Ton (EU) CRC Price - US$/Ton (EU)
buy-back as alternate uses of any free cashflows.
Source: Bloomberg
Chart 2: Tisco: P/B
n Trade Barriers May Render ’Global’ Prices 4.0
Ineffective 3.5
Recent Sec. 201 proceedings in the US and expected 3.0
retaliatory policies from other countries highlight the rising 2.5
barriers to global trade in steel. We see two clear 2.0
implications: 1.5
1. De-linking of steel price cycles in various markets. 1.0
Given the rising trade protectionism, local supply- 0.5
Apr-93
Apr-94
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
Apr-02
demand dynamics will likely become the primary
driver of steel prices in each market.
2. Exports will become more difficult both in terms of P/BV (TISCO) (RHS)
market access and price competition. Source: ML Research
n Continued Pressure On Domestic Steel Prices

The (mis)fortunes of the steel market in India have been
similar to global trend. With the exception of long
products, domestic steel prices across products are close to
9-year lows. Domestic steel prices continue to be hit by:
• High domestic overcapacity
• Redirection of exports into the local market owing to
rising trade barriers
• Scale compulsions of producers allowing limited
flexibility to cut production
In the last 12-18 months, the problem of low domestic
prices has been compounded by erosion/ inversion of
margins across the product chain. Consequently,
producers who undertook product upgradation as a
counter-cyclical measure, have been severely hit.
15
Table 2: Profit & Loss Table 4: Cash Flow

Yr to 31 Mar (Rs mn) 2000A 2001A 2002E 2003E Yr to 31 Mar (Rs mn) 2000A 2001A 2002E 2003E
Turnover 60,940 68,386 68,508 75,715 Recurring net profit 4,451 8,243 4,657 5,843
Operating costs (48,609) (51,366) (54,089) (58,979) Forex adjustments 0 0 0 0
EBITDA 12,331 17,020 14,418 16,736 Depreciation 4,265 4,923 5,410 5,681
EBITDA margin (%) 20.2 24.9 21.0 22.1 Changes in working capital 3,549 2,170 1 35
Depreciation (4,265) (4,923) (5,410) (5,681) Other non-cash flow items 0 0 0 745
Operating profit 8,066 12,098 9,009 11,055 Gross cash flow 12,266 15,336 10,067 12,303
Recurring ’other’ items 525 551 551 551 Net capital expenditure (7,920) (6,063) (5,485) (5,582)
EBIT 8,591 12,649 9,560 11,606 Loans to associates 0 0 0 0
Net interest income(exp.) (3,600) (3,766) (4,386) (4,344) Free cash flow 4,345 9,273 4,582 6,721
Profit before tax 4,991 8,883 5,175 7,262 Net acquisitions (138) (343) (1,384) (500)
Tax (540) (490) (388) (1,290) Non-recurring items (225) (2,858) (2,317) (2,665)
Profit after tax 4,451 8,393 4,786 5,972 Other items (2,808) (730) 0 0
Preferred dividends 0 (150) (130) (130) Cash available for dividends 1,174 5,342 880 3,556
Recurring net profit 4,451 8,243 4,657 5,843 Dividends paid (1,719) (2,176) (2,152) (2,152)
Net margin (%) 7.3 12.1 6.8 7.7 Equity issued 0 0 0 0
Non-recurring items (225) (2,858) (2,317) (2,665) (Inc)/dec in net debt (545) 3,166 (1,272) 1,404
Reported net profit 4,226 5,385 2,339 3,177 Opening net cash/(debt) (45,609) (46,154) (42,988) (44,260)
Source: Company; ML estimates (Inc)/dec in net debt (545) 3,166 (1,272) 1,404
Closing net cash/(debt) (46,154) (42,988) (44,260) (42,857)
Source: Company; ML estimates
Table 3: Balance Sheet
Yr to 31 Mar (Rs mn) 2000A 2001A 2002E 2003E
Fixed assets 74,241 75,381 75,456 75,358 Table 5: Ratios
Investments in associates 5,877 6,220 7,604 8,104 Yr to 31 Mar 2000A 2001A 2002E 2003E
Inventory 7,162 6,823 6,835 7,554 EPS growth – reported (%) 51.0 27.4 (56.6) 35.8
Trade debtors 11,827 12,793 12,816 14,164 PE – reported (X) 8.7 6.8 15.8 11.6
Other working capital assets 8,998 9,756 9,773 10,801 ROE (%) 12.4 22.3 14.2 20.9
Cash & cash equivalents 4,419 5,134 5,134 5,134 ROCE (%) 9.2 14.1 10.4 11.1
Current assets 32,405 34,506 34,558 37,653 Gearing 129% 112% 161% 150%
Interest cover (X) 2.4 3.2 2.0 2.6
Working capital liabilities (26,148) (29,703) (29,755) (32,886)
Dividend yield (%) 4.0 5.0 5.0 5.0
Short-term debt (3,769) (4,153) (4,161) (4,599)
Dividend payout (%) 34.8 34.1 78.6 57.9
Current liabilities (29,916) (33,856) (33,916) (37,484)
Total net assets 82,606 82,250 83,702 83,631
Capital & retained earnings 35,803 38,281 27,468 28,493
Shareholders funds 35,803 38,281 27,468 28,493
Preferred shares 1,500 1,400 1,400 1,400
Long-term debt 45,304 42,569 43,833 41,992
Deferred liabilities 0 0 11,000 11,745
Capital employed 82,606 82,250 83,702 83,631
16
India
Autos/Car Manufacturers / ADR
15 April 2002 Tata Engineering &

Prakash Joshi
Assistant Vice President
Locomotive Co. Ltd.
(91) 22 232-8673
prakash_joshi@in.ml.com Elephants Can Dance Too! BUY*
Reason for Report: Company Update Long Term

STRONG BUY
Price – Local/ADR: Rs127.35/US$2.60 Highlights:

12 Month Price Objective: Rs155/US$3.15 • If you thought elephants couldn’t dance, this
Estimates (Mar) 2001A 2002E 2003E Tata group major may have already proved
Net Income (mn): -5003.4 -1129.8 1442.1 you wrong. A stupendous Rs5bn loss in FY01
EPS: -19.55 -3.53 4.51 and market share losses across segments
P/E: -6..5x -36.1x 28.2x
EPS Change (YoY): -802.7% -77.4% -227.6%
invigorated the restructuring efforts that were
Cash Flow/Share: 0.03 11.32 15.95
already ongoing in the company.
Price/Cash Flow: 4245.0x 11.3x 8.0x • The restructuring focused on return to
Enterprise Value/EBITDA: 20.0 9.8 7.6
Gross Dividend: 0.0 0.0 0.0
profitability through —
Gross Yield: 0.0% 0.0% 0.0% 1. Revamping product portfolio and
ADR EPS (US$): -0.41 -0.07 0.09 revitalizing the marketing team
ADR Gross Dividend (US$): 0.00 0.00 0.00
ADR Cash Flow/Share (US$): 0.00 0.23 0.33
2. Aggressively cutting all costs – raw
material, personnel, interest
3. Disinvesting non-core holdings.
Investment Opinion – Local: C-2-1-8
Investment Opinion – ADR: C-2-1-8 • Telco’s consistent market share gains in
Volatility Risk: Above Average M/HCVs and cars and expanding operating
Mkt. Value / Shares Outstanding (mn): Rs40,752 / 320
Book Value/Share (Mar-2001): Rs84.80 margins (up from 4.5% in FY01 to 10% in Q3
Price/Book Ratio: 1.5x FY02) in FY02 put to rest any fears on the
ROE 2002E Average: -5.5% success of the restructuring exercise.
LT Liability % of Capital: 110.7%
Est. 5 Year EPS Growth: 15.0% • Notable among non-operating initiatives are
2002E P/E Rel. to Home Mkt: 2.7 sell off of non core investments (over Rs2.5bn
Stock Data in FY02) and a rights issue for Rs6.7bn –
52-Week Range – Local: Rs153.25-Rs59.95
resulting in significant interest cost savings.
52-Week Range – ADR: US$3.01-US$1.25 Telco has prepaid some of its expensive debt
Symbol / Exchange – Local: TENKF / Bombay and is rescheduling some other.
Symbol / Exchange – ADR:
Bloomberg / Reuters:
TENHF / OTC
TELCO IN / TELC.BO • Key challenges ahead are: maintaining growth
Shares/ADR: 1.00 in CVs over the medium term and achieving
Exchange Rate: INR48.8600/USD cash breakeven in the car business.
Free Float: 62%
Average Daily Turnover (th): 2048
*Intermediate term opinion last changed on 03-Dec-2001.
Stock Performance
For full investment opinion definitions, see footnotes.
160
Note: Due to currency factors, the investment opinion for the ADR may differ 140
from the underlying share.
120

relationships, with the companies in this report.
60
40
Apr-01
May-01
Jun-01
Aug-01
Sep-01
Jan-02
Mar-02
Feb-02
Apr-02
Oct-01
Jul-01
Nov-01
Dec-01

an affiliate of Merrill Lynch & Co., Inc.Merrill Lynch & Co. TELCO Adj. BSE Sensex
17
Clawing Its Way Back n Cost And Efficiency Focus

The huge Rs5bn loss for FY01 (its first ever loss and Material Cost Savings: With raw materials
among the largest in Indian corporate history) came when accounting for about two-thirds of the total vehicle
a massive restructuring exercise was already underway at cost, biggest cost reduction opportunities exist in the
Telco and served to give a new sense of seriousness to the internal manufactures, outsourced components and
restructuring exercise. assemblies. Extensive value engineering efforts,
In this section, we highlight some of the significant moves rationalization of processes and supplier base and
by the company over the last 18 months and those planned Internet-based reverse auctions are among the
ahead: initiatives taken by Telco to cut raw material costs.
Manpower Restructuring: reduced headcount by
n Revamping Product Portfolio 11,500 (about 30%) over 1998-2001 and is targeting
There is a shift towards higher haulage heavy another 1,500 in FY02. As a result, personnel cost fell
commercial vehicles (HCV) and away from the 13% in FY01 and we expect it to decline another 5%
traditional medium commercial vehicles (MCV) for over FY02 and FY03. Implementation of a
better economics at the transporters’ end. Through performance-based compensation scheme and
new offerings in multi axle vehicles (MAV) range, redeployment of people are underway to improve
Telco has emerged a bigger beneficiary of this shift management productivity.
than Ashok Leyland. These vehicles now account for Financial Restructuring: taken firm steps to reduce
over 40% of Telco’s truck sales vs just 25% last year. balance sheet size and improve capital structure.
Relaunch of indigenous 697-engine powered MCVs, Telco has raised Rs6.7bn through the rights issue,
cheaper than Telco’s Cummins range ones and those divested over Rs2.5bn of non-core investments, and
from competition. This helped improve margins for pre-paid and/ or restructured high-cost debt. Thus,
Telco and offered a more affordable vehicle for the we expect total interest cost to come down 16% in
customer. Additionally, Telco has also succeeded in FY02 and by a sharper 20% in FY03, when the full
bringing down the cost of Cummins engines. effect of these measures will flow in. Also, the
company has written off Rs11.8bn from its share
Indica V2, an improved variant of earlier Indica premium account. This includes Rs9.3bn deferred
models and loaded with additional features, has done revenue expenditure, Rs2.15bn diminution of fixed
well. It was recently voted the second most improved assets (capital WIP) and Rs320mn diminution in
vehicle in the 2001 JD Power rating survey. With investments. Although cash neutral, the write-off will
monthly volumes of over 5,000 units, the Indica make earnings look healthier starting FY03 as the over
project is now at cash breakeven, though still away Rs1.2bn amortization charge will no more be needed.
from net breakeven.
These measures along with higher volumes have seen
Pipeline for the next 12 months includes more Telco’s operating margins at the 8-10% range
models in the HCV segment, a new LCV range and a compared with 4.5% in FY01.
mid-size car on the Indica platform.
Chart 2: Improving Operating Margin
Chart 1: Regaining Market Share In Key Segments
16%
80% MHCVs LCVs 30% 13.8% 13.7%
14%
75% UVs (RHS) Cars (RHS) 13.7%
25% 12%
10.0%
70% 10% 8.9%
20% 10.6% 7.0%
65% 8%
8.4%
60% 15% 6% 7.3%
55% 4%
10% 4.5%
2%
50%
5% 0%
45%
1Q FY02
2Q FY02
3Q FY02
FY95
FY96
FY97
FY98
FY99
FY00
FY01
40% 0%
Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01 Dec-01
Source: Telco, ML Research

Source: Telco, ML Research
18
LCV market is still languishing with no imminent sign

Growth Drivers Looking Up of recovery. Again, competitive pressures have forced
fleet operators to shift from LCVs to 3-wheelers.
We see early signs of a domestic cyclical recovery:
Telco is yet to offer a new value proposition for this
Infrastructure industries grew 4.9% YoY in February segment.
2002. Strong cement (21.1% YoY) and coal (8.3%
YoY) volumes principally drove the growth. n Car Business … Still Away From Breakeven
• Witnessing an uptrend in the capital goods and basic In order to achieve net breakeven, Telco needs to
goods sector - indicators that we expect should ramp-up from current levels of about 5,000 units per
strengthen, as we move into 4Q. month (cash breakeven) to about 7,000 units. The
company plans to introduce a mid-car in order to
− Real narrow money (M1) growth indicates that address a wider market, and augment sales. These
industrial recovery should have started in 3Q FY02, new variants and products will hold the key to the car
but for Sep. 11. Recovery should now start in 4Q. business moving to pretax breakeven in the next 12-18
− Agriculture grew 2.8% in 1H FY02 vs 0.5% in 1H months.
FY01. Further, we expect much stronger growth in Indica is also facing increased competition from its
2H, as better winter rains (+31% above normal) look alike, Fiat Palio, launched recently.
have led to a 12% increase in gross cultivated area for
the rabi (winter) crop. We expect this to help MCV While the company is still looking for a suitable
demand (movement of agricultural goods). strategic partner for the car project, it could take some
time given the state of the global economy. So while
NHDP (National Highways Development Project) we expect an improvement in the car business, we
road projects are on schedule. Nearly 18% is believe positive earnings contribution is still some
complete and over 2/3rds of the project with a capital time away.
outlay of Rs40bn is currently under implementation.
This will provide a strong impetus to truck, tipper and n High Earnings Leverage To CV Volumes
dumper demand over the next 2-3 years.
M/HCVs and LCVs together contribute about two-
thirds of Telco’s total sales (by value). Significantly,
Table 1: NHDP – Progress Up To Feb 2002 CVs are among the highest margin contributors in
Proposed Under Yet to be Telco’s overall portfolio of products and outsourcing
Link (Km) Completed Implementation awarded levels for CVs (esp. MCVs) are relatively lower than
Delhi – Kolkata 1,458 22% 43% 35% MUVs and cars, mainly due to legacy reasons.
Kolkata – Chennai 1,684 4% 96% 0%
Thus, as we have highlighted in the past, Telco’s
Chennai – Mumbai 1,281 14% 86% 0%
earnings are highly sensitive to CV volumes, which in
Mumbai – Delhi 1,422 35% 65% 0%
turn are a function of the industrial, agricultural and
Total 5,845 18% 73% 9% investment activity in the country.
Source: NHAI
Table 2: PBT Sensitivity To CV Volumes Growth
-400bps -200bps Base Case +200bps +400bps
Challenges Ahead
CV Volumes Growth 4 6 8 10 12
Change in PBT (%) (65.2) (32.6) 32.6 65.2
n Excess Capacity in Goods CVs
Source: ML Research
The recent upturn in truck demand is driven by fleet
replacement rather than fleet expansion. Despite low
fleet utilization rates, the need for better operating
efficiency is shifting demand towards HCVs vs
MCVs. Thus, tonnage capacity creation outstrips
current demand and may dampen demand over the
next 12-24 months.
Weak state government finances have severely
affected bus order flow from state transport
undertakings, though this has hit Ashok Leyland more
than Telco given the former’s higher dependence on
this segment of the market.
19
Table 3: Earnings Model Table 5: Cash Flow

Year to Mar(Rs m) FY01 FY02F FY03F Year to Mar (Rs Mn) FY01 FY02F FY03F
Net turnover 66,773 67,567 76,802 Profit before tax -5003.4 -1579.8 2060.1
Operating cost 63,741 61,031 68,691 Less taxes paid 3.0 0.0 0.0
EBITDA 3,031 6,536 8,111 Depreciation 3473.7 3586.3 3659.1
EBITDA margin 4.5% 9.7% 10.6% Less prev period expenses 0.0 0.0 0.0
Depreciation 3,474 3,586 3,659 Less net misc/ VRS exp cap -1047.0 -411.3 0.0
Amortization of def. rev. exp. 1,374 906 - Changes in working capital 7642.3 -104.2 -1902.8
Amortization of emp. sep. cost 167 259 - Cash from operations 5068.6 1491.1 3816.5
Interest 4,436 3,638 2,815
Other income 1,947 273 423 Capex inc capital WIP -1868.2 -2700.0 -1950.0
Profit bef tax & extra-ords (4,472) (1,580) 2,060 (Inc) / dec in investments -1864.4 2847.5 500.0
Extra-ordinary income/ (loss) (532) - - Cash from investing -3732.6 147.5 -1450.0
Tax-current - - 515
Tax-deferred - (450) 103 Inc / (dec) in share capital 0.0 639.7 0.0
PAT exc extra-ord items (4,472) (1,130) 1,442 Inc / (dec) in share premium 0.0 3518.4 0.0
% growth 608% -75% -228% Inc / (dec) in debt -53.8 -6025.7 -2240.0
Reported net profit (5,003) (1,130) 1,442 Dividends paid -639.6 0.0 0.0
Source: Telco, ML Estimates Dividends taxes paid -140.7 0.0 0.0
Cash from financing -834.1 -1867.6 -2240.0
Table 4: Balance Sheet Total cash flow 501.9 -229.0 126.5

Opening cash 652.7 1154.6 925.6
Year to Mar (Rs m) FY01 FY02F FY03F Closing cash 1154.6 925.6 1052.1
Share capital 2559 3199 3199 Source: Telco, ML Estimates
Reserves 26924 17512 18954
Less misc. exp not w/o -8919 0 0
Net worth 20564 20711 22153
Loans 29989 23963 21723
Accumulated def tax liability 3055 2605 2708
Total liabilities 53608 47279 46584
Fixed assets 38236 35200 33491

Investments 13872 10704 10204
Total current assets 27658 24806 26723
-Inventories 11051 9626 10100
-Debtors 7545 6849 7575
-Other assets 7908 7405 7996
-Cash & bank 1155 926 1052
Total current liabilities 26158 23430 23834
Net current assets 1500 1375 2889
Total assets 53608 47279 46584
Source: Telco, ML Estimates
20
India
Computer Services
15 April 2002 Tata Consultancy

Mitali Ghosh
(91 22)232 8661
Services
mitali_ghosh@in.ml.com
Vijay Bhayani Leading The Way
(91 22) 232 8674
Girish Pai
(91 22) 232 8657 Reason for Report: Company Overview
Tien Yu Sieh
(852) 2536 3025
Highlights:
• Established in 1968, Tata Consultancy Services (TCS) pioneered the
offshore delivery model. It is India’s largest IT services company with an
IT Services
FY01 rev. of $690m and nearly 18,000 consultants (nearly 2x Indian peers’).
• TCS has a diversified revenue mix across services, domains and
geographies. Products of TCS form 6-8% of revenues, including a wide
variety of products like the software development tool, MasterCraft, the
universal, integrated banking package, Quartz, the cement industry focused
management tool, Cempac etc. We understand TCS is now focusing on
growing its products business and leveraging its IPRs.
• At 800 clients, TCS has more than twice the number of annual active clients
than its closest Indian peers’. It has more than 85 Fortune 500 clients. One
of the most recent client wins was the US$40m+, 3-year contract from
United Utilities Water Plc., UK.
• TCS outperformed industry during the 9-month ended Dec '01, with
EBITDA growing by 49% YoY, on 340 bp margin expansion.
• It is TCS’ vision to be among the global top 10 consulting firms by 2010,
with the edge of having downstream delivery capabilities.
• Key features of TCS’ business profile are:
• Domain expertise built over 3 decades. TCS is also focusing on
capturing its project experience into components/ brands e.g. Cempac,
Quartz which help it showcase its domain knowledge to clients.
• TCS invest 4% of revenues annually (vs less than 1% by Indian/global
peers’) on R&D.
• TCS has made significant progress in implementing its inorganic
growth strategy, as reflected in its acquisition of CMC in Aug. 01.

Merrill Lynch & Co. Merrill Lynch, as a full-service firm, has or may have
Global Securities Research & Economics Group business relationships, including investment banking
Global Fundamental Equity Research Department relationships, with the companies in this report.
21
industry is at 40 to 50%), TCS gains valuable experience

Company Overview in the domestic market by undertaking complex projects.
One such project was computerisation of the Reserve Bank
Established in 1968, TCS is a division of Tata Sons Ltd.,
of India’s (Central bank) public debt office to provide a
the holding company of the Tata group.
real time money market trading and settlement system.
TCS is the pioneer of the information technology (IT)
industry in India, and is India’s largest software and
Reputed Client Base
services company. It was the pioneer of the offshore
delivery model and undertook the first international TCS has about 800 active clients annually, more than
assignment in 1971. It has nearly 18,000 consultants and twice its closest Indian competitors such as Infosys
its 51% subsidiary CMC, has another 3,200 consultants, (INFYF/INFY, C-2-1-7/C-2-1-7, Rs3,623/$61) and Wipro
thereby it has a total of about 21,200 consultants, about (WIPRF/WIT, C-3-1-7/C-2-1-7, Rs1,690/$35).
twice the number of its closest Indian peers. Its FY3/01 19 of the company’s top 25 clients have been with the
total revenues of $690m, was more than 50% higher than company for over 5 years. It has a healthy percentage of
its closest peer in software exports in FY01 viz. Infosys. repeat business at over 70% of revenues, with a reasonable
contribution from new clients as well. Close Indian peers
Diversified Revenue Base have new client contribution at less than 20%. The
company has over 20 dedicated development centers
TCS offers end-to-end IT consulting and services across
(DDCs)
diverse technology areas and industry verticals, as below.
TCS’ blue-chip client base includes 7 of the Fortune top
10 clients viz. General Motors, Ford Motor, General
Table 1: Revenue Mix By Service Practice
Electric, Citibank, IBM, AT&T and Verizon and over 85
Year-ending March 01 Fortune 500 clients. This compares with 67 Fortune 1000
Application Development & Maintenance 60.4% clients at Infosys and 84 at Wipro.
E-Business 25.9%
Architecture & Technology Consulting 5.4%
A recent important client addition announced this
Engineering 4.6%
month was of United Utilities Water Plc., UK. This is a
Large Projects 2.9% US$40m contract over 3 years. United Utilities is UK’s 1st
Others 0.8% multi-utility group with annual turnover of £1,775m.
Source: Tata Consultancy Services According to the media, TCS added 84 gross clients
between April and July 2001 (counts new business entities
under same company/ group individually). This compares
Table 2: Revenue Mix By Industry Practice (%) with about 50 gross additions by Wipro and Infosys.
Year-ending March 01 TCS Infosys Wipro
BFSI * 39 34 12 Products – Consolidating Knowledge
Manufacturing 18 18 7 Base, Leveraging IPRs
Telecom 19 18 32
Retail & Distribution 7 9 n.a. TCS derives about 6-8% of its revenues from products,
Transportation 4 n.a. n.a. implying nearly $50m of product revenues in FY01.
Others 13 21 49 Amongst peers Infosys derived about 2.5% of revenues
Source: TCS, Infosys, Note*: BFSI : Banking, Financial Services and Insurance from products in FY01 at about $10m.
TCS developed its first product, The Integrated Standard
Banking System (ISBS), for the domestic market in the
Table 3: Revenue Mix By Geography 80s. This product controls over 60% of the market even
Year-ending March 01 TCS Infosys Wipro Accenture* EDS* today. Until recently, TCS’ products were marketed
Americas 66 74 64 49 58 mainly in the domestic market or sold as part of solutions
Europe 20 19 29 39 12 in the global market. Now TCS appear to focus
Others 7 6 7 12 30 increasingly on commercially leveraging its IPRs, globally
India 6 1 Wipro as well.
Infotech
Some of its leading products include Mastercraft (one of
Source: Companies, ML Note: Accenture data June 01, EDS Dec 00
the world’s few tools of its kind, which help to organize
and manage software development systematically, generic
Developing The Domestic Market as well as custom products), Quartz (a universal, integrated
TCS is the largest player in the domestic market, banking package, reflects over 700 person years of
deriving 6% of its revenues from India. While billing development effort, deployed in 8 sites and is rapidly
rates and margins are typically lower in the domestic gaining acceptance in global markets), Network Custody
market vs the export market (typical discount seen in the and Clearing System (NCS, a custodial services system,
22
deployed on 25 sites for 10 blue-chip clients, reflects 300 n Technology Experience

person years of development effort) and Cempac (a cement
industry focused total management tool) etc. TCS’ has rich experience spans nearly 35 years. Its
technology experience ranges from mainframe technology
n Financial Metrics based assignments in the 70s to current day internet-based
technologies and core technology services for telecom and
FY01 technology. This gives TCS the ability to work with and
TCS' FY01 revenue/employee is lower than Indian peers’ integrate multiple systems, that clients often find
such as Infosys ($54,056 in FY01) and Wipro ($45,771 in themselves saddled with, particularly with increasing
FY01). This could partly be explained by TCS having a M&A in user industries such as banking etc.
higher percentage of domestic revenues at 6% vs peers’.
The employee numbers also include those on products. n Client Base
FY01 EBITDA margin at 36.2% was lower than 42.6% for TCS has a large, reputed client base. Its repeat business
Infosys and about 40% for Wipro. contributes over 70% of revenues. 19 of the company’s top
25 clients have been with the company for over 5 years.
Table 4: Key Financial Metrics n Domain Expertise
FY97 FY98 FY99 FY00 FY01 Three decades of experience and lateral recruitment have
Revenue (US$ m) 220 290 410 490 690 helped TCS build its domain expertise. Further, TCS has
EBITDA (US$ m) 80 120 190 205 250 Centers of Excellence which carry out domain specific
EBITDA margin % 36.4% 41.4% 46.3% 41.8% 36.2% research aimed at capturing project experience into
No. of employees 9500 10500 12100 14300 16800 components and then possibly into brands.
Revenue/employee (US $) 23158 27619 33884 34266 41071
TCS is also exploring the option of collaborating with
Source: Tata Consultancy Services
customers to share in owning the IPRs. For e.g. it has a
joint IPR with an Australian company for one of the
9m FY02
insurance products.
During the first 9 months of FY02, TCS has shown YoY
rupee revenue growth of 34%, EBITDA expansion of 340 n R&D
bp. and EBITDA growth of 49%, outperforming industry.
TCS has the largest software R&D center in the country at
Pune. It invests over 4% of turnover in R&D (vs less than
Table 5: 9m FY02: Key Financial Numbers 1% by Infosys, Wipro and the big 5 and global SIs).
EBITDA YoY EBITDA In addition it sponsors external R&D and has 11
Rs bn Revenue EBITDA PBT Margin % margin change collaborations with premier technological and educational
TCS 30.5 10.7 10.4 35.1 340 bp institutions. TCS also has Centers of Excellence which
YoY% 34 49 56 undertake domain focused research, as discussed above.
Infosys 19.2 8.1 6.9 42.1 -130 bp
INFTF, C-2-1-7, n Human Capital; Processes
Rs3709
YoY% 44 39 41 TCS invests over 6% of revenues in training and has a
Wipro 25.0 7.5 7.0 29.8 340 bp training facility to train over 3,000 people at a time. Over
WIPRF, C-3-1-7, 50% of the employees have Master’s or PhD degrees and
Rs1596 60%+ have engineering degrees. Its EVA-linked
YoY% 17.0 32.0 37.0
performance based compensation system rewards merit.
Wipro 34.8 PBIT -270 bp in PBIT
margin of margin of global IT The opportunity to work on complex projects is also a
global IT svcs motivating factor.
svcs
Quality processes and methodologies enable TCS to
Source: Company, ML Research manage very large projects. TCS has 14 centers and
over 9,500 SEI-CMM level 5 certified consultants. It was
also the world’s first company (four centers) to be certified
Key Highlights Of TCS’ Business at People’s Capability Maturity Model (PCMM) Level 4 in
Profile Aug. 2001.
n Management TCS has won prestigious large contracts such as the
project from The Global Straight Through Processing
TCS is managed under the leadership of its CEO Mr. Association (GSTPA) to develop a Transaction Flow
Ramadorai, a 29-year TCS veteran and a Master in Monitor (TFM), won against stiff competition from other
Computer Science from the University of California. global consortia including the big 5. TCS won this project
in ‘00, as part of the consortium led by the Swiss Corp. for
International Securities Settlement.
23
n Inorganic Growth Strategy

TCS leverages partnerships and alliances to expand
business prospects, where necessary. For e.g. it has a
partner in Switzerland, TKS Teknosoft, which helped it
develop the Swiss market. It has several alliances with
product and technology companies such as Oracle,
Microsoft, IBM, Siebel, I2 etc. It also has several joint
ventures including the call center with HDFC, Intelenet
Global Services in which TCS has a 45% stake, the 49%
JV with Singapore Airlines etc.
Unlike many Indian vendors such as Infosys, Wipro etc.
who have been considering the M&A route to growth, but
have yet to kick-off the process, TCS has made tangible
progress in implementing its inorganic growth strategy, as
seen by the CMC acquisition.
The CMC Acquisition
TCS acquired 51% in CMC Ltd. in Oct. 2001. CMC, with
revenues of $160m in FY01, brings with it synergies in
terms of its wide skill sets across systems integration,
hardware/software support services (IS outsourcing
related) and strong R&D capabilities in electronics system
design. It also has a large well reputed client base
including clients in verticals like transportation (London
Underground, Changi Airport), and a large share of the
domestic market with work done for the Indian
government (Indian Railways) etc.
24
India
15 April 2002
Vandana Luthra
(91 22) 232 8670
Tata Tea Ltd.
vandana_luthra@in.ml.com
Moving Into International Arena – Opportunities And Risks
Reason for Report: Company Overview
Highlights:
• The Tetley acquisition catapulted Tata Tea from the second largest
branded tea marketer in India to the second largest tea multinational in the
world with combined sales of over US$600m.
•
Consumer
The deal should offer significant synergies – Tetley gets access to Tata Tea’s
gardens and production base and the latter gets Tetley’s premium brands
and global distribution network.
• Tea prices are on a structural downturn with supply exceeding demand. In
such a scenario, Tetley’s technical expertise should enable Tata Tea to
upgrade its product portfolio and thus improve its competitive position.
• While Tata Tea’s restructuring initiative – moving from plantations to
branded tea to now, global branded tea through Tetley – are exciting, the
strategy does entail risks.
• Key challenges are to retain Tetley’s management team and improve cash
flows to pay down the high cost debt, as the Tetley balance sheet is highly
leveraged. Hence returns would accrue only on a longer-term horizon.
• Tetley was acquired for £271m (equity: £70m, debt: £201m) by a special
purpose vehicle, Tata Tea GB. In FY01, Tata Tea GB made a loss of
£13.7m including goodwill write-off of £12m.
• Tata Tea’s current exposure in Tata GB is Rs5bn, 57% of its net worth.
This could rise should Tata GB need cash to pay down debt. In a worse
case, Tetley’s bankers do not have recourse to Tata Tea’s balance sheet.
Historic PE Band Historic EV/EBITDA Band
700 45000
40000
600
35000
500
30000
400 25000
20000 20x
300
25x 15000 15x
200 20x
15x 10000 10x
100 5000
0 0
Apr-97
Aug-97
Apr-98
Aug-98
Apr-99
Aug-99
Apr-00
Aug-00
Apr-01
Aug-01
Apr-97
Aug-97
Apr-02
Dec-97
Apr-98
Aug-98
Dec-98
Apr-99
Aug-99
Dec-99
Apr-00
Aug-00
Dec-00
Apr-01
Aug-01
Dec-01
Apr-02
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Source: Trends; Company Date Source: Trends; Company Date

an affiliate of Merrill Lynch & Co., Inc. Merrill Lynch, as a full-service firm, has or may have
Merrill Lynch & Co. Global Securities Research & Economics Group business relationships, including investment banking
Global Fundamental Equity Research Department relationships, with the companies in this report.
25
Company Background Factors operating on the demand side – Tea appears to

be losing glamour. Perhaps more marketing aggression
Tata Tea is India’s second largest marketer of packet tea – from cola manufacturers and growing coffee culture have
FY01 tea volumes were 74m kg, sales and net profit was impacted tea demand. While tea still remains the staple
Rs8.2bn and Rs1bn respectively. Tata Tea owns 54 tea drink of the masses given that it is the most affordable
producing estates with approximately 25,700 hectares beverage, urban markets have more alternatives available
under tea cultivation across India. Branded teas account today and hence the falling tea demand.
for 85% of Tata Tea’s total volumes.
• Value Addition Is Now Key
Tetley is the world’s second largest branded tea company –
CY2000 sales were £246m and losses, £13.7m. Tetley In a scenario of supply exceeding demand, the key for tea
blends, packs and distributes tea products (mainly tea companies is to improve per unit realizations. This can be
bags) in the UK, Canada, Australia, USA and a number of done by cost cutting and stronger brand portfolio. The
European countries. former has limited potential in a highly labor intensive
plantation business. Stronger brand portfolio is a better
Restructuring Initiative alternative. Tata Tea is trying to do just this with the
Tata Tea’s recent acquisition of Tetley, world’s second acquisition of Tetley. The acquisition provides the
largest tea company, is an example of Tata group emerging company with a mix of plantation and brands. Plantations
as a more vibrant player in an industry which otherwise give regular access to specific types of tea, critical for
offers falling growth rates. The deal should bring significant maintaining blend quality and very importantly, to get the
synergies – Tata Tea’s large production base can potentially freshest teas. At the other end of the spectrum, Tetley
feed into Tetley’s global distribution network. strengthens Tata Tea’s existing brand portfolio.
Over the last few years, Tata Tea has been gradually • Stronger Brand Portfolio
moving from plantations to branded teas. Exiting Branded teas account for more than three-fourths of Tata
commodity (spices, etc.) trading and focusing on core Tea’s turnover. However, these are largely mid to lower-
branded teas appeared to be a successful strategy with the end brands facing stiff competition from smaller
company establishing around 20% market share, (the unorganized players. Falling commodity prices further
second largest with turnover of Rs7.5bn), in the last two exacerbates this problem. Hence a stronger portfolio was
decades. the key to improving market share and profitability in an
The next step was to insulate the company from the otherwise relatively low-margin and fiercely competitive
vagaries of commodity prices and improve profitability of tea market.
the business. The Tetley acquisition intends to achieve However building new brands is a time consuming and
this objective, albeit gradually. The acquisition should expensive exercise and the problem is further magnified
help to expand Tata Tea’s export markets and provides when you add R&D costs. The Tetley acquisition should
access to Tetley’s extensive worldwide distribution enable Tata Tea to overcome these issues to some extent.
network, thus creating an Indian multinational. The premium-end of the market is less susceptible to
commodity price changes and can improve profitability of
n Factors Driving Tetley Acquisition
the overall portfolio. Tata Tea should also benefit from
While the acquisition will likely bring returns only in the Tetley’s technical expertise in value-added tea products
long run, we present here management’s vision behind such as instant, ice and herbal teas, all of which offer
the acquisition. higher margin potential.
• Structural Changes: Supply Exceeds Demand
Historically, supply and demand of tea has been in Tata Key Challenges
Tea’s favor: over the last decade demand grew at 3% p.a. While the acquisition of Tetley catapulted Tata Tea from
whereas production grew at around 2.2% p.a. Going the second largest branded tea marketer in India to the
forward, management expects supply to exceed second largest tea multinational in the world, it also
demand and hence, structurally, tea prices will likely worsened the risk profile of the company. The key risks
remain depressed. relate to management capabilities and an over stretched
Factors operating on the supply side – Domestic supply balance sheet. Strategically the company is moving in the
is a function of exports and production. Exports have been right direction – selling branded teas worldwide and not
falling owing to greater competition from lower cost just in India, however the key challenge is to earn a return
producers, Kenya and Sri Lanka. Concurrently domestic from the Tetley acquisition. Management expects this to
production has been rising with a number of smaller take some years.
plantations focusing less on quality. This leads to a
vicious cycle of lower prices and smaller players further
focusing on volumes to maintain the profitability of their
plantations.
26
The key challenges for the group are:

• Highly Geared Balance Sheet Table 2: Balance Sheet
Year to 31 March 1998 1999 2000 2001
Tetley was a highly leveraged buyout. The total
Share capital - Equity 486.2 486.2 562.2 562.2
acquisition cost of £271m was financed through £70m
Reserves 3304.0 3997.9 7740.2 8189.0
equity and £201m debt. A special purpose vehicle, Tata
Net worth 3790.2 4484.1 8302.4 8751.2
Tea GB, was created for the acquisition. At the time of
Debt 2867.4 2400.2 2697.5 2390.3
acquisition, Tata Tea GB was held 100% by Tata Tea.
Total liabilities 6657.6 6884.3 10999.8 11141.5
Since then the Tata group has picked up 1.4% stake and
Tata Tea’s stake is now 98.6%. Net fixed assets 2528.1 2292.6 2918.7 3113.6
Tata GB’s current debt equity ratio is 1.8:1 and debt Investments 1778.4 2311.1 1995.6 6219.1
repayment schedule extends over the next 7-8 years. With Total current assets 4017.8 4265.4 8393.6 3833.8
interest cover of merely 1.2x (as of end Dec2000), -Inventories 1103.6 1590.8 1912.1 1414.5
management’s key objective is to increase cash flows and -Debtors 838.6 826.7 829.6 606.7
reduce debt. As of end Dec 2000, Tata GB’s net loss was -Other assets 1722.3 1341.5 5517.7 1727.9
£0.5m. -Cash & bank 353.3 506.4 134.2 84.7
Total current liabilities 1666.7 1984.9 2308.0 2025.0
Tata Tea’s total exposure in Tata GB is Rs5bn, 57% of its Net current assets 2351.1 2280.5 6085.6 1808.8
total net worth. While Tetley is a leading brand in a Total assets 6657.6 6884.2 10999.8 11141.5
number of countries, the key risk is whether the Tata group Source: Tata Tea
needs to infuse further cash. The additional £30m
investment this year in Tata GB (£20m by the group and
£10m by Tata Tea) brings this risk to the fore. Table 3: Cash Flow Statement
Management has indicated further investments in Tata GB
are unlikely. In a worse case, Tetley’s bankers will not Year to 31 March 1998 1999 2000 2001
have recourse to Tata Tea’s balance sheet Profit before tax 1,441.6 1,847.6 1,650.7 1,276.1
Tax paid -329.0 -558.7 -366.3 -282.8
• Management Capabilities Profit after tax 1,112.7 1,288.9 1,284.3 993.3
Depreciation 146.6 176.7 186.5 203.7
The Tetley acquisition, places enormous pressure on
Changes in working cap -309.1 168.8 -4,172.5 4,228.6
management capabilities. Skill sets differ between a
Cash from operations 9,50.2 1,634.5 -2,701.6 5,425.7
company operating in a local market and one that is
Capex -432.9 58.8 -812.6 -398.6
operating in diverse markets. The relationship between the (Inc) / dec in investments 64.6 -532.7 315.5 -4,223.5
companies appears harmonious given that there has not Cash from investing -368.3 -473.9 -497.1 -4,622.1
been any major exodus of Tetley employees. For the Increase in share capital 0.0 0.0 76.0 0.0
acquisition to be successful, the underlying aim, i.e. to Increase in reserves 3,046.8 4.4
leverage Tetley’s global marketing expertise and Tata Chg in debt -45.1 -467.3 297.3 -307.2
Tea’s strong experience in tea production, must be met. Dividend (inc tax) paid -347.6 -540.2 -593.7 -550.2
Cash from financing -392.8 -1,007.4 2,826.4 -853.0
Total cash flow 189.1 153.1 -372.3 -49.4
Table 1: Earnings Model
Opening cash 164.2 353.3 506.4 134.2
Year to 31 March 1998 1999 2000 2001 Closing cash 353.3 506.5 134.1 84.8
Net turnover 8698.7 8742.3 9124.6 8228.8 Source: Tata Tea
Operating profit 1566.0 1935.5 1392.9 1047.4
Operating profit margin 18.0% 22.1% 15.3% 12.7%
Depreciation 146.6 176.7 186.5 203.7
EBIT 1419.4 1758.8 1206.4 843.6
Interest 238.8 180.7 176.1 250.4
Other income 261.1 269.5 620.3 682.8
Profit before tax 1441.6 1847.6 1650.7 1276.1
Tax 420.0 560.0 405.0 274.0
Net profit 1021.6 1287.6 1245.7 1002.1
Growth 74.3% 26.0% -3.3% -19.6%
Net margin 11.7% 14.7% 13.7% 12.2%
Source: Tata Tea
27
Cost Breakdown FY01 Turnover Breakdown

Chart 2: India Tea Price Trend
4 5 2 Rs/ Kg
85
1999 2000 2001
80
1
75
70
3 2 1 65
60
% % 55
1 Raw materials 23.0 85.0 1 Branded
50
2 Packing 8.0 15.0 2 Loose
45
3 Manufacturing & 37.0
others 40
4 Personal 23.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
5 Advertising & 9.0
selling Source: Tea Auction Data, J Thomas & Co.
Source: Tata Tea Source: Tata Tea, Industry Sources
Table 4: Tea Turnover Breakdown

FY98 FY99 FY00 FY01
Volumes (mn kg) 71.4 72.2 78.5 74.0
% YoY 1.1% 8.7% -5.7%
Realisation (Rs. kg) 92.7 114.9 109.5 107.3
% YoY 24.0% -4.7% -2.0%
% of Total Turnover 76.1% 94.9% 94.2% 96.4%
Source: Tata Tea
28
India
15 April 2002
Bharat Parekh
(91 22) 232 8656
The Indian Hotel Company
bharat_parekh@in.ml.com
Restructuring For A Better Tomorrow
Reason for Report: Company Overview
Highlights:
• Led by change in management in September 1997, The Indian Hotels
Company (IHCL) has had a significant strategy shift with focus on the
value-added side of the hospitality business vs physical expansion and also
implemented a restructuring plan which includes:
• Shift from an asset-heavy to asset-light strategy with focus on asset control
via JV/ management contracts. This helps IHCL expand the Taj brand’s
reach and capture market share without putting undue burden on the
company's balance sheet. E.g. Taj GVK, IHCL’s 25.5% JV in Hyderabad.
Leisure
• IHCL has also restructured global operations in the US and Sri Lanka. In
the US, it sold off all properties that did not fit its premium image. Owing
to debt restructuring in Sri Lanka, the group reduced its global debt by
over US$18m.
• IHCL also reduced staff by 18% in FY01, sold assets worth Rs140m to
emerge as a lean organisation and is focusing on renovating leading
properties to enhance revenues. Over the next year, IHCL plans to further
improve asset utilization by selling-off surplus land worth Rs1bn. IHCL
has also decided to restructure its property portfolio to focus on its
premium image, which would also free-up cash.
• RevPARs (revenue per available room) are on a structural downturn led by
global/ domestic events and excessive rooms supply in key cities accounting
for over 80% of IHCL’s profits.
• The key challenge for IHCL would be to balance its global growth
ambitions and shareholders' returns, which have deteriorated in the
medium term.
Chart 1: PE Band Chart 2: EV/ EBITDA
1000 32
900
27
800
700 22
600
17
500
400 25X 12
300 7
200 15X
100 2
5X
Apr-94
Dec-94
Aug-95
Apr-96
Dec-96
Aug-97
Apr-98
Dec-98
Aug-99
Apr-00
Dec-00
Aug-01
Apr-02
0
Dec-94
Aug-95
Dec-96
Aug-97
Dec-98
Aug-99
Dec-00
Aug-01
Apr-94
Apr-96
Apr-98
Apr-00
Apr-02
EV/EBITDA
Source: Company Data Source: Company Data

Produced in conjunction with DSP Merrill Lynch Limited Merrill Lynch, as a full-service firm, has or may have
an affiliate of Merrill Lynch & Co., Inc.Merrill Lynch & Co. business relationships, including investment banking
Global Securities Research & Economics Group relationships, with the companies in this report.
29
Restructuring Initiatives but also improved bargaining power of the group, which
resulted in obtaining a RevPAR premium of 1.17 (for Taj
The Indian Hotels Company (IHCL) cruised through Krishna) and added to IHCL’s bottomline. (Note: RevPAR
management change in September 1997. Since then the premium = RevPAR of the company / RevPAR of the
company has adopted the following four key competitive set; RevPAR of >1 = greater market share
restructuring initiatives under the new IHCL than company’s fair share.)
management led by Mr. R. K. Krishna Kumar:
• Shifting towards an ‘asset-light’ model focused on Table 1: Taj Properties In Hyderabad
hospitality vs real estate-driven earlier.
Hotel Company Rooms
• Restructuring global operations to reduce group/ Taj Krishna Taj GVK 261
IHCL debt Taj Residency Taj GVK 140
• Reducing staff, selling surplus assets and renovating Taj Banjara Taj GVK 118
Grand Kakatia ITC 180
lead properties
Total 699
• Likely restructuring of its property portfolio to fit its Source: Company
premium image. This would also release cash.
RevPARs (revenue per available room - are calculated as Consequent to its 25.5% strategic stake and management
occupancy rate multiplied by ARR and is a better indicator contract deal with all the 3 hotels of Taj GVK, IHCL
to assess the operating performance of the hotel) in the captures the upsides relating to the hotel business in the
Indian hotel sector have been on a structural downturn led city of Hyderabad without adding any new property to its
by the tough local scenario resulting from: balance sheet.
• Domestic political/ economic uncertainties Similarly, IHCL has also adopted an asset-light approach
in the city of Ahmedabad in India and, likewise, to enter
• Deteriorating law & order situation in select pockets Dubai through Taj Palace, where it has taken the
• Regional tensions in the Indian sub-continent management contract route of market expansion.
• Global recession & events such as 9/11 has led to slow n Restructure Global Operations To Reduce
growth in foreign tourist inflows. Consolidated Debt
• Significant oversupply of rooms in key Indian cities, Another important measure adopted by IHCL is to
which accounts for over 80% of IHCL’s profits. restructure global operations. Taj had a presence in the US
through 5 hotels – one in New York (Lexington), one in
n Shift Towards An ‘Asset-Light’ Model Focused Chicago (Executive Plaza) and three in Washington. In
On Hospitality 1999, the Taj group sold all its properties in the US that
The new IHCL management, after assuming office in did not fit with its premium image. While Lexington hotel
1997, has been implementing strategies to shift from an was sold for approx. US$105m, the Executive Plaza sold
asset-heavy to an asset-light business model, which for around US$50m. The company received only around
focuses on asset acquisition through JV/ management US$1m from the hotels in Washington, as they were under
contracts. The company believes expansion through JVs/ liquidation. The proceeds of the sale were used to reduce
management contracts would help IHCL expand the Taj the debt burden of Taj HK, its subsidiary St James Court,
brand’s reach and capture market share without putting UK and IHCL. As a result, of this restructuring, IHCL
undue burden on the company's balance sheet. reduced the consolidated debt of the group.
For example: Taj had a luxury five-star hotel (Taj Further, IHCL restructured its operations in Sri Lanka by
Banjara), in the fast upcoming city of Hyderabad with restructuring its US$38m debt, which ballooned due to
luxury hotel demand led by the IT sector. Taj Banjara had currency depreciation. Due to debt restructuring in Sri
a 17% market share in the city. Considering the potential Lanka, the group reduced its global debt by over US$18m
of the city, IHCL saw an opportunity in the expanding led by a one-time settlement with banks.
capacity in Hyderabad. However, without spending too
n Reduced Staff, Sold Surplus Assets And
much on capex, Taj formed a 25.5:74.5 JV with the GVK
hotel group called Taj GVK. The GVK group had two Renovated Lead Properties
(then called Krishna Oberoi & Holiday Inn Krishna) of the IHCL reduced staff in 2H FY01 by 1,244 (18%) from a
city’s four five-star hotels. IHCL retained the management 7,000-strong workforce through VRS at a cost of Rs496m.
contract for all 3 hotels, which would add to its bottomline. As a result, labor cost fell to 19.9% in FY01 from 20.7% in
This deal not only increased the Taj brand’s market share FY00. The full benefit of VRS would be reflected in the
in the city of Hyderabad from 17% to 74% as shown below FY02 numbers.
30
IHCL also sold assets/ land worth Rs140m last year to Already IHCL has an RoE of 12.5% for FY01. The RoE
improve capital turnover. has consistently fallen from 38% in FY95 to 12.5% in
FY01. Considering the sector scenario in India and
Another stage of IHCL’s restructuring has been to return to
IHCL’s global growth ambitions, we believe the key
the basics and focus on its lead properties. As a result,
challenge ahead for IHCL is to strike the right balance
IHCL initiated significant renovation of key properties in
between its growth strategies and shareholders' returns,
the metros — Taj Mahal, Mumbai, Taj Palace, New Delhi
and Taj Bengal, Calcutta. This has resulted in a rise in which have been under pressure in the last seven years.
market share and RevPAR premiums in the respective
cities as shown below. Table 4: Earnings Statement
Y/E Mar, Rs m FY98 FY99 FY2000 FY2001
Table 2: Citiwise Details Available rooms(per day) 2568 2618 2762 2705
Revenue Mkt. RevPAR Occupied rooms (per day) 1500.3 1491.3 1623.7 1644.2
Share Premium ARR (Rs) 5953.7 5507.2 5231.9 5022.6
City FY01 FY02 FY01 FY02
Income
New Delhi 21.6 23.46 1.05 1.16
Rooms 3260.4 2998.8 3013.8 3343.9
Mumbai 43.11 46.65 0.91 0.99
Food & beverages 2243.9 2385.9 2512.5 2921.0
Note: Data for April-Nov.
Misc. operating income 446.8 508.4 508.4 610.1
Source: Company
Total operational income 5951.1 5893.1 6034.7 6875.0
Other income 288.0 340.4 271.2 288.4
n A Re-look at Property/ Land Portfolio Total income 6239.1 6233.5 6305.9 7163.4
Expenditure
To improve capital efficiency over the next year, IHCL Staff costs 993.4 1114.4 1252.2 1371.9
plans to further improve asset utilization by selling-off Food & beverages consume 803.7 839.9 763.2 830.0
surplus land worth Rs1bn, which it owns near the Mumbai Fuel, power, light 470.8 469.9 497.2 608.1
airport. IHCL is also currently reviewing its property Supplies, services, repairs 532.7 446.5 522.3 547.7
portfolio and might restructure this to meet its premium Sales & administration 1237.2 1266.3 1435.2 1651.9
image. This should free-up cash for deployment into the Operating profit 1913.3 1756.1 1568.0 1865.4
premium segment. Depreciation 324.2 338.4 376.9 451.6
Interest 251.9 231.7 155.4 311.5
However, actual implementation of this plan remains
Less: exp. capitalised to FA 14.4 15.0 3.8 17.5
contingent upon execution of sale.
Profit before tax 1639.6 1541.4 1307.3 1408.2
n Inter Firm Comparison Tax 260.0 350.0 175.0 205.0
Profit after tax 1379.6 1191.4 1132.3 1203.2
Given the uncertain macro environment, the financials of EPS (Rs) 30.6 26.4 25.0 26.5
IHCL as also that of the entire hotel industry, has CFPS (Rs) 37.8 33.9 33.4 36.4
deteriorated. However, we find that IHCL stands out with DPS (Rs) 8.5 8.5 8.5 10.0
its relatively better performance vs competition in FY02. Source: Company Data
Table 3: YTD Performance In FY02

Particulars (Rsm) IHCL % Change EIH % Change
Sales 4362.8 -3.0 2759 -20.4
EBITDA 913.9 -19.7 254 -63.2
PBT (Operations) 368.1 -52.0 211.2 -65.3
PAT 138 -74.3 128.6 -72.4
Source: Company Data
n Key Challenges
We believe that IHCL will have to balance its global
growth ambition and shareholders' returns, which have
deteriorated in the medium term. IHCL once again
appears to be looking to expand globally with a presence
in key gateway cities of the world, to drive traffic from
these centers into India. While this strategy might yield
positive results in the long term, we expect medium term
pressure on the leveraged IHCL balance sheet.
31
Revenue Analysis (3Q FY02)

Table 5: Balance Sheet By Category By SBUs
Y/e Mar, Rs m FY98 FY99 FY2000 FY2001 3 4
Liabilities 4
Shareholders’ funds 8128.0 8894.7 9577.0 9615.6 3 1
Share capital 451.2 451.2 452.2 454.2
1
Reserves & surplus 7676.8 8443.5 9124.8 9161.4 2
Loans & advances 1626.7 1427.4 4042.1 5476.3 2
Unsecured loans 987.3 623.3 1722.0 1660.8
Shop security deposits 346.4 356.8 281.1 76.8 1 Rooms 46% 75% 1 Luxury
Current liabilities 1547.5 1635.8 1722.7 1872.3 2 F&B 39% 12% 2 Business
Total liabilities 11648.6 12314.7 15622.9 17041.0 3 Mgmt. fees 4% 10% 3 Leisure
Assets 4 Other 11% 3% 4 Corporate
Fixed assets 4145.7 4667.7 6068.6 6639.3 Source: Company Data
Gross block 5506.3 6102.4 8054.4 8798.9
Capital work in progress 308.5 554.3 365.7 605.2 Table 6: Cash Flow Statement
Less: depreciation 1669.1 1989.0 2351.5 2764.8 Y/e Mar, Rs m FY98 FY99 FY2000 FY2001
Investments 2180.9 2590.9 3377.5 4221.3 Net profit 1379.6 1191.4 1132.3 1203.2
Current assets 1773.8 1301.4 1297.3 1406.3 Add: depreciation 324.2 338.4 376.9 451.6
Stock of stores & supplies 45.6 86.5 92.3 96.5 Gross/ operating cash flow 1703.8 1529.8 1509.2 1654.8
Stock of food & beverage 157.7 143.2 100.5 84.2 Increase in FA 684.5 596.1 1952.0 744.5
Increase in CWIP 129.3 245.8 -188.6 239.5
Sundry debtors 809.1 846.4 834.1 985.1
Increase in inventories of F&B 18.9 -14.5 -42.7 -16.3
Interest accrued on Inv. 0.0 0.0 0.2 0.1 Increase in stores & supplies 9.1 40.9 5.8 4.2
Cash & and balances 761.4 225.3 270.2 240.4 Increase in debtors 2.7 37.3 -12.3 151.0
Loans & advances 3548.1 3754.5 4878.5 4771.1 Incr. in other CA (loans & adv) 349.6 206.4 1124.0 -107.4
Total assets 11648.5 12314.5 15622.9 17041.0 Increase in S. creditors -50.5 -74.6 80.8 72.0
Increase in other current liab. 32.6 86.1 448.5 74.3
Source: Company Data Increase in provisions -0.6 72.9 -58.9 -0.5
Increase in working capital 398.8 185.7 604.4 -114.3
Free cash flow 491.2 502.2 -858.6 785.1
Increase in secured loans -154.6 164.8 1516.0 1495.4
Increase in unsecured loans -356.0 -364.0 1098.7 -61.2
Increase in share capital 0.0 0.0 1.0 2.0
Increase in security deposits 286.2 10.4 -75.7 -204.3
Increase in investments 32.9 410.0 786.6 843.8
Dividend paid 421.8 421.8 425.7 42.2
Others -15.0
Net cash flow -202.9 -518.5 469.1 1131.0
Opening balance (cash) 964.1 761.4 225.3 270.2
Increase/decrease in cash -202.9 -518.5 469.1 1131.0
Closing balance (cash) 761.2 242.9 694.4 1401.2
Source: Company Data
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India

17 April 2002 Restructuring In India -

1. Changing group ethos: Restructuring of the Tata group is more

Overview 1. Restructuring Initiatives - Successes & Challenges 3

Tata Power Co. Ltd. (TPC) Investing In Light 9

Tata Iron & Steel (TISCO) Fighting Externalities 13

Tata Engineering & Locomotive Elephants Can Dance Too! 17

Tata Consultancy Services (TCS) Leading The Way 21

Tata Tea Ltd. Moving Into International Arena 25

The Indian Hotels Company Restructuring For A Better Tomorrow 29

1. Restructuring Initiatives - Successes &

Changing The Group Ethos

Table 1: Trend In Tata Shareholding

Restructuring The Companies

n Companies Given Time To Restructure

Rationalizing The Product Portfolio

n Focus On 7 Core Businesses ….

Table 2: Focus Business Segments

n ….. And Getting Out Of The Rest

n Future Focus On Knowledge-based Businesses

The Report Card

n Divestments And Acquisitions Accepted By The Group

n Shifting Group Focus To Knowledge-based Sectors

Chart 1: Sales Breakdown Of The Tata Group

Communications Services Materials Services Materials

Sources: Tata group

Table 3: Businesswise Breakdown Of Profits

n Need To Improve Human Resource Management

n Greater Focus On Minority Shareholders’ Interests

Price: Rs114.55 Highlights:

Produced in conjunction with DSP Merrill Lynch Limited

Chart 1: Sales Of Tata Power To BSES

Table 3: Balance Sheet (Rsmn)

Reason for Report: Company Overview Long Term

Price: Rs99.95 Highlights:

Produced in conjunction with DSP Merrill Lynch Limited

n Tata Steel – Globally Cost Competitive

Table 1: Cost Of Steel Vs Global Players

making fresh cash commitments. In the interim, we think

n Continued Pressure On Domestic Steel Prices

Table 2: Profit & Loss Table 4: Cash Flow

15 April 2002 Tata Engineering &

Reason for Report: Company Update Long Term

Price – Local/ADR: Rs127.35/US$2.60 Highlights:

Merrill Lynch, as a full-service firm, has or may have 100

DSP Merrill Lynch Limited

Clawing Its Way Back n Cost And Efficiency Focus

Source: Telco, ML Research

 LCV market is still languishing with no imminent sign

Table 3: Earnings Model Table 5: Cash Flow

Table 4: Balance Sheet Total cash flow 501.9 -229.0 126.5

Fixed assets 38236 35200 33491

15 April 2002 Tata Consultancy

DSP Merrill Lynch Limited

industry is at 40 to 50%), TCS gains valuable experience

deployed on 25 sites for 10 blue-chip clients, reflects 300 n Technology Experience

n Inorganic Growth Strategy

Reason for Report: Company Overview

Source: Trends; Company Date Source: Trends; Company Date

DSP Merrill Lynch Limited

Company Background Factors operating on the demand side – Tea appears to

The key challenges for the group are:

Cost Breakdown FY01 Turnover Breakdown

Table 4: Tea Turnover Breakdown

LCV market is still languishing with no imminent sign