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Tata Steel Ltd
Overweight
TISC.BO, TATA IN
Analyst Meet Takeaways
We attended TATA’s analyst meet regarding the FPO. The key takeaways from
the analyst meet and Prospectus are as follows:
• Funding capex and de-leveraging: Tata Steel’s pricing for its 57MM equity
issuance between Rs594-610/share would imply fund raising of ~Rs34bn (at the
lower end of the pricing range). As per the company, Rs18bn would be used for
funding its ongoing 3MT expansion at Jamshedpur (total project cost of
Rs163bn of which Rs67bn has been spent so far) and the remaining would be
utilized for de-leveraging the balance sheet and general corporate purposes with
Rs10bn going towards debt re-payment, leaving Rs6bn ($133mn) for other
purposes. TATA expects total capex at Rs105bn in FY11E and between Rs108-
122bn in FY12E. We have forecast Rs130bn in FY11E and Rs98bn in FY12E,
hence cumulative FY11-12E capex forecasts is in line with our estimates. In
terms of maturity of debt profile, Rs92bn has a maturity of less than or equal to
1 year; Rs320bn on 1-5 years; Rs127bn > 5years with total debt at Rs541bn. In
Dec-10 and Jan-11, TATA issued 20 year NCD (non convertible debentures) at
10.25%. Total head count stood at 81000 with 34000 in India and 35000 in
Europe.
• Another round of fund raising at a later date? While the company had
approval to raise Rs70bn, the current round would utilize only half of this
basket. To our question that if there is further equity raising planned at a later
date, management clarified that while there is no immediate need ‘they would
not close the door’ on this. We believe fund raising would likely be dependent
on the progress of the long delayed Orissa green field project with internal cash
flow generation and internal fund raising (via sale of investments, non core
investments).
• Europe details: The prospectus gives a peek into capacity utilization across
various plants in Europe. Current steel capacity stands at 18.4MT with 7.7MT at
Ijmuiden and the rest in UK split across 3 facilities. Cap util in FY10 and
H1FY11 at 74% and 86% respectively at Ijmuiden, 67%/82% for Port Talbot;
60%/76% at Scunthorpe and 31%/46% at Rotherham with total cap util at
66%/79% respectively.
FY10 accounting for 14% of sales volume.
• Raw material update: As per management so far the floods in Europe have not
impacted the company’s coking coal supply (sources 40% coking coal
requirement from Australia) with 3mths of inventory. TATA purchased 8.9MT
of coal (steel production stood at 14.4MT in FY10) for its European operations
purchased from Australia, US and Canada and 3.1MT of clean coal for its India
operations.
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