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Steel Industry
•Market Overview: Global and
Indian
•Market Segmentation
•Competitive Landscape
•PEST Analysis
•Regulatory Framework
•Growth Drivers of the Industry
•Challenges faced by the
Industry
TATA Steel
•Company Overview
•Products and Services
•Company History and Milestones
•Financial Highlights
•Segmental Result Analysis
Index
TATA Steel
•Peer Group Analysis
•Stock Chart Analysis
•Board of Directors and Shareholding
Pattern
•SWOT Analysis
Annexure
•News Highlights
Investment Rationale
eel imports grew at 16.6% in 09-10 due to the increased domestic demand and reduced global
ndia goes up by 4.2% against reduction of 8.2% in w
e with Nippon Steel for production of auto grade cold rolled products wit
help from Posco will produce higher grades of electrical steel for electr
Section II:-Market
Segmentation
Market segmentation – Product – End User wise
Product Wise End user wise
Construction
Automotives
Aerospace
Consumer Goods
Material Handling
Packaging
trategic/Key Industry given the inherent structure &
Recycling Industry
h Coke are the main inputs for manufacturing steel. Pig Iron & DRI are intermediate products with vary
cts are heated at high temperatures & varied kinds of alloyed & non alloyed steels are produced.
el: Primary steel - Steel produced directly from iron ore, Secondary - Steel produced out of basic scrap
ude Steel is processed further into flat products, long products, specialist steel
Section III:- Competitive
Landscape
less consolidated as top 3 players command 44% of
0 both implying that there is an oligopoly in the industry & medium to high concentration
el production & SAIL is the largest player with 26% market share
Competitor
‘Competitor Landscape’s in
Landscape
Steel Industry’
TATA STEEL SAIL JSW STEEL VISA STEEL ESSAR STEEL BHUSHAN STEEL
Source:- Company filings. & mkt cap & float figures are as reported on company
website as on Sept. 2010
teel largest private player but going through a roug
d by 30% for FY10 which was mainly due to increase in competition and slow down of econo
t half of SAIL, its Net Profit (50.5 mn) is close to SAIL Net Profit(61.8).
han what was estimated. This was due to increase in cost of raw material.
Competitor which means company is not able to make best use of its capital.
ans company is not able to generate sufficient cash internally as compare to their competitor
it enjoy’s good market share and it is expected that world steel consumption is going to inc
Section IV:- PEST Analysis
PEST Analysis
Section V:- Regulatory
Environment
National Steel Policy
Power
•Construction Opportunities: Eleventh Five Year Plan - Increase the
installed generation capacity by 79 GW
frastructure development to be the major growth driv
ays is close to 142 USD bn, indicating huge demand for steel in construction indu
about 55% of the total steel produce & is a major consumer of long products.
), budgeted allocation of ~$500bn has been made to infrastructure sector & a targ
budget for improvement & provision for housing & basic amenities
Land
•Limited with multiple use
•Local Issues – Social & Political
•Overlapping responsibilities between State and Central Government
•
city of 27 mn tonnes
in 50 markets and
rations in 26 countries
US $ 23.05 Bn
S $ 2.08Bn
= US $ 18 Bn
Tata Steel India
Tata Steel India
•
•
• Pan-European integrated supply chain
•O p e ra tio n s E fficie n cy
•
•
t UK )- distribution centres
Business Description
Customer Segments
•
•
Section III:-Company
History and Milestones
Landmarks
•2004
• Award for energy conservation
• Tie up with Canadian Minnaean Building Solutions based on
housing and construction
• Ranked among global companies in the world's most
respected companies survey for CSR
• Signed definitive agreement to form a 50:50 joint venture
with L&T for setting up a port at Dhamra in Orissa on
October 29, 2004
•2005
•
Landmarks (Contd…)
•2007
• Signed a MoU with Vietnam Steel Corporation
• Signed a MoU with Riversdale Mining Ltd.
• Signed a Joint Venture Agreement for Mount Nimba Iron Ore
deposits in Ivory Coast, West Africa.
•2008
•
Acquisitions
•
Financing Portfolio and Capital Raising
•
Equity Raising
•
-
•
• Raised `1,069.20 Crs (US$ 230 Mn) through preferential allotment issue of
shares and warrants to Tata Sons in July’10
•
Debt -
•
•NatSteel Holdings Pte. Ltd. has sold its entire 27.03% stake in Southern
Steel
Berhad, Malaysia to Signal and Sdn Bhd at a total consideration of ~US$
72 Mn
Other Developments -
•
•RML is raising capital of A$ 337 Mn through private placement of A$ 102 Mn
and non- renounceable rights issue of A$ 235 Mn
• RML is taking steps which will find long term solutions to logistics
Section V:-Segmental
Results Analysis
Steel – Segments according to Products & Geographie
he nature of the products, the differing risks and returns, the organisational str
It is one of the top steel providers in the Asia-Pacific with over 3,500 employees
(KZN)(Pty) Limited, Tata Steel Holding Pte Limited
ess Segment’s dropping growth saw improvement in Q4 o
tal revenue by the segments over the last three years has marginally changed.
hat the changes are natural and related to economic changes i.e., they are mainly due to mar
the contribution of these segments is not related to a particular Segment Focus by TATA s
p decline & TS Thailand also saw a slight decline in
ate from 9% (FY09) to 4% which was due to bad Market Conditions in Europe.
of FY10. There was a decline of consumption to around 45% during the first half of 2009 d
)
metallic input cost which resulted fall in revenue for FY10.
‘Steel Business Contribution to Total Revenue’…
he growth rate of Tata Steel has declined from 23% in FY09 to 3% in FY10.
he major reason for this was due to global economic slowdown.
here was also an increase in competition mainly in UK and other European Nations.
ncrease in Interest Expenses added to reduce in profit of Tata Steel than what was estimat
he prices and volume reduced to a great extent in this Financial Year.
mpact of high scrap prices in the last quarter depressed margins.
‘New Geography Venture of Tata Steel’s in Canada’…
of a feasibility study, it will arrange to fund the entire project cost of $300 mn (Rs 1
of date.
Market Cap 607.1 450.9 506.4 763.4 603.5 656.7 261.1 157.2 132.4
Total Assets 134.3 120.5 381.7 402.8 359.9 274.7 56.5 48.59 32.2
Revenues 267.6 268.4 221.9 439.0 487.2 459.9 194.6 151.8 126.3
PAT 50.5 52.1 46.9 67.5 61.7 75.4 20.2 4.6 17.3
Net debt 252.4 269.4 180.1 165.1 75.6 30.5 115.9 112.8 75.5
Net debt / 0.78 0.78 0.67 0.39 0.21 0.18 1.29 1.2 0.88
equity ratio
Net Worth 622.0 571.2 453.2 498.3 357.1 261.1 212.9 192.3 152.2
Reports of the respective companies and the Market cap. as per the last audited Balance Sheet
Peer Group Analysis
uarterly PAT and EBITDA is highest for Tata steel & is growing steadily except
QFY11
Section VII:-Stock Chart
Analysis
Tata Steel Stock Price Movement
2010-Barack Obama’s comments on banks; & BSE traded below 17000 & TATA steel prices started decreasing.
Apr, 2010-Goldman Sachs fraud causes a fall in Asian market & BSE
t a 350 mn Euro (USD510 million) contract to supply rail tracks to French operator SNCF & from December 2009
steel share price has shown stock movement close to base price (1st sep 2009)
s stock movement is nearly same as the Tata Steel’s stock
s stock has shown an upward movement after February 2010 as compared to Tata steel and JSW
Metal Index
rowth had hit the metal sector in India but soon the index picked up due to recovery in steel demand globally
Apr, 2010-European shares drifted lower in volatile trade on unease over euro zone sovereign deb
al companies in India have paid higher advance tax in the Q3FY10 compared to the same period last year. By gaining 0.74 pe
el stock and metal index are lower from August, 2010 levels.
as shown more steady movement in comparison to Metal Index and TATA Steel stock price movem
el stock price and Metal Index movement are almost same from 1st September, 2009 to 31st Aug
Section VIII:-Board of
Directors & Shareholding
Pattern
Shareholding Pattern
Shareholders %
Indian Bodies Corporate 32.37
Trust 0.11
Mutual Funds/UTI 3.70
Financial Institutions/Banks 0.25
Government 0.01
Insurance Companies 22.26
FII 15.57
Foreign bodies DI 0.01
FII-DR 0.55
Non-Institution Bodies Corporate 3.41
Individual shareholders holding nominal 18.40
share capital up to Rs. 1 lakh
Source: moneycontrol.com
Board of Directors
•
Section IX:-SWOT Analysis
SWOT Analysis
• Financial Model: TATA
Steel
Section I:-Assumptions
Revenue Model Assumptions
Application of funds
Fixed Assets
Gross Block 20,847.0 23,544.7 26,149.7
Depreciation 8,123.0 8,962.0 10,037.6
Impairment 100.5 100.5 106.1
Earnings Before Interest, Depreciation, Taxes and Amortization(EBITDA) 7838.28 8789.78 8,626.0
depreciation less expenses transferred to capital account 659.11 629.75 757.1
EBIT 7179.17 8160.03 7,868.9
other income 242.8 853.8
308.3
Total Income 7421.97 8,468.3 8,722.7
Net finance charges 786.5 1,152.7 1,508.4
EBT 6635.47 7315.61 7214.30
profit from exceptional items 430.89 0 0
taxes 2379.33 2113.87 2167.5
PAT 4687.03 5201.74 5046.80
Projected Balance Sheet
Tata Steel FY 2011E FY 2012E FY 2013E FY 2014E FY 2015E FY 2016E
(INR in millions) 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
Assets
Current assets:
Cash & cash equivalents -7,373.2 -3,656.8 4,950.8 12,655.1 29,024.3 48,826.0
Short-term investments 0.0 0.0 0.0 0.0 0.0 0.0
Receivables, net 197.6 719.0 825.9 972.9 1,571.3 2,097.2
Merchandise inventories 1,952.0 3,471.5 3,987.9 4,697.7 7,587.2 10,126.6
Prepaid expenses & other current assets 4,807.6 6,162.4 7,079.2 8,339.1 13,468.3 17,976.2
Total current assets -416.0 6,696.1 16,843.8 26,664.8 51,651.1 79,026.1
COGS & occupancy costs 7,767.2 9,773.6 11,196.9 13,189.7 21,302.4 28,510.3
Gross profit 23,757.4 27,817.3 31,868.0 37,539.8 60,629.9 81,144.6
Gross profit margin (%) 75.4% 74.0% 74.0% 74.0% 74.0% 74.0%
Operating expenses
operation and other expenses 6,508.8 8,270.0 9,474.3 11,160.5 18,025.1 24,124.1
administrative and other expenses 1,382.5 1,654.0 1,894.9 2,232.1 3,605.0 4,824.8
Operating profit 15,866.1 17,893.3 20,498.9 24,147.2 38,999.8 52,195.7
Operating profit margin (%) 50.3% 47.6% 47.6% 47.6% 47.6% 47.6%
Other income (expense), net 5,694.6 -1,697.3 -1,691.7 -1,609.4 -1,527.1 -1,527.1
Income tax provision (benefit) 2,050.5 1,668.2 1,937.1 2,321.4 3,859.7 5,218.9
Net profit 19,510.1 14,527.8 16,870.0 20,216.4 33,613.0 45,449.7
Net profit margin (%) 61.9% 38.6% 39.2% 39.9% 41.0% 41.4%
Weighted average basic shares 90.2 88.7 88.7 88.7 88.7 88.7
Weighted average diluted shares 90.2 88.7 88.7 88.7 88.7 88.7
Sensitivity Analysis
Weighted average cost of capital Step 0.50%
Perpe 790.03 9.5% 10.0% 10.5% 11.0% 11.5% 12.0% 12.5%
tual
3.3% 4,353.88 3,937.02 3,579.47 3,269.68 2,998.93 2,760.46 2,549.01
growt
h 3.5% 4,425.35 3,989.84 3,618.34 3,297.98 3,019.13 2,774.41 2,558.10
3.8% 4,502.49 4,046.39 3,659.64 3,327.82 3,040.27 2,788.87 2,567.39
4.0% 4,586.06 4,107.14 3,703.65 3,359.38 3,062.43 2,803.88 2,576.92
4.3% 4,676.99 4,172.64 3,750.71 3,392.85 3,085.73 2,819.51 2,586.69
4.5% 4,776.39 4,243.53 3,801.19 3,428.43 3,110.29 2,835.80 2,596.74
4.8% 4,885.58 4,320.58 3,855.54 3,466.40 3,136.25 2,852.84 2,607.08
Step 0.25%
Section IV:-Key Ratios
Key Ratios
Abandonment No guidance for Full eventual Decrease in fixed The company makes The company will have to
cost estimation of
costs. Section V:-IFRS
liability to be
recognized in the
beginning at the
assets and liabilities
and higher finance
costs due to
provision yearly till
the end of the mine
life under specific
make provisions for assets
like mines initially itself
by discounting the value
Convergence
discounted unwinding of the guidance by IGAAP. of liability to its present
present value. discount. value.
Exploration & Successful effort Moving towards Profitability to be The company follows Under IFRS the company
evaluation or full cost successful effort negatively impacted successful efforts will have the choice to
expenditure method. method. as cost pertaining to method and either capitalize the
unviable discoveries capitalizes all expenses or to charge
will have to be evaluation and efforts them directly to the
expensed in the year. expenditure and income and expenditure
depreciates them over statement.
the life of the assets.
IFRS Convergence
Topic IGAAP IFRS Impact of IFRS Current Treatment Impact on Tata Steel
in company
FCCBs No clear Mandatory to Increases earnings The premium on The huge FCCB exposure
guidelines on segregate each volatility due to fair redemption or the of Rs.22.3Bn which has to
separation of component such value changes in the discount on issue are be redeemed at a premium
Section V:-IFRS
components. as debt and conversion options. treated separately in of 23% will have a huge
derivative and Also interest the books of accounts impact as the premium
fair value expense may and are not spread will now be distributed
changes on increase as cost of over the tenure of the over the life of the bonds.
Convergence
conversion optionissuance and
recognized in
P&L.
redemption premium
is included in
bonds.
interest expense.
• Annexure
Section I:-Major News
News Highlights
• Sovereign debt and fiscal crisis not fully resolved and large spending
cuts pending/ underway
• Unemployment is high
• Bank lending remains weak
• UK auto production is forecast to grow by 24% in 2010
•MACRO RISKS
• Imports into EU remain relatively low and import share has fallen
• EU27 remains a net exporter, which helping to support capacity
utilisation
•
News Highlights
•PROJECTS UPDATE
• 3 Mtpa Brownfield expansion at Jamshedpur:
• Capex incurred till Sep’10 : Rs 5,732 Crs (US$ 1,276 Mn), H2 FY11 Capex planned :
Rs. 2,963 Crs (US$ 659 Mn)
• Project progression as per planned. Commissioning in H2 2011-12
• Product Mix – 2.54 Mtpa Hot Rolled Coil and 0.3 Mtpa Slabs
•Tata Steel Processing & Distribution Ltd (TSPDL):