Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel
Turnaround story
Event
Tata Steel is the world’s sixth largest steel company with over 29mtpa of
steel capacity. Its steel manufacturing plants are located in India, Netherlands,
UK, and Thailand, among others. In India, the operations are largely
integrated with captive raw materials.
Its Indian operations contribute 25% of sales and 70% of EBITDA. However,
Corus, its UK arm, contributes 60% of sales, and its EBITDA contribution is
expected to be about 25% in FY2012.
Impact
Increasing capacity in India: India operations will continue to remain strong,
and we expect EBITDA/ton of $400 for FY11. Tata Steel has continued to
invest in growth projects to secure earnings growth. Tata Steel is expanding
its Jamshedpur works crude steel capacity from 6.8 MTPA to 10 MTPA. The
company also has proposed three Greenfield steel projects in the states of
Jharkhand, Orissa and Chhattisgarh.
Corus remains the key to recovery: We expect EBITDA of US$3.9bn on
consolidated basis in FY2011, with Corus expected to earn $57/ton of
EBITDA. Recovery in volume at Corus remains the key driver and that
remains on track with capacity utilisation now touching 80%.
Raw material initiative – can make Corus more valuable: Tata Steel has
completed the feasibility study at the DSO iron ore project at Canada and can
produce 4mnt iron ore by 2011 at estimated capex of C$300m. Also, its
coking coal project in Mozambique is likely to start some production by 2011.
Action and recommendation
Increased visibility on medium term triggers: The company expects to
complete its ongoing 3m tonnes expansion in India by Dec 2010, production
of coking coal at Mozambique from Jan 2011 and iron ore production from
Canada from May 2011. It also expects to commence construction at its
Kalinga Nagar project in the next few months.
Tata steel is the best stock to play the rebound, in our view: Its Indian
operations should benefit from rising raw materials costs due to its integrated
nature, while its European arm should gain from improving volumes. It
remains our top pick in the steel names. We rate it Outperform with a target
price of Rs863.
Tata Steel Aide Memoire
Operational Issues
1. What is the cash cost of HRC (hot rolled coil) for Indian and European operations?
2. What steps are you taking to reduce cost? What are the fixed costs at Corus? Plans for reducing the same? What is the
breakeven sales and EBITDA per ton for Corus?
3. Has there been any improvement in the demand scenario? What is the inventory situation? Which of the markets are worst
hit? Do you have flexibility to change product mix to suit market conditions?
4. What is the volume guidance for FY12?
5. What is your expectation of raw material contracts for FY2012? How do you handle the left over contracted raw material
quantities, if production is to be reduced? Do your contracts allow forgoing them without any penalty?
Financial Issues
1. How much is the gross debt at both Corus and consolidated levels? What is the structure, tenure and cost of these debts?
What debt:equity are you comfortable at?
2. What are plans for further refinancing? How much of capex is planned? What is the dependence of internal accruals to
meet the above capex + refinancing?
3. What are the debt covenants? How is the company placed to meet them assuming low capacity utilization at Corus with
marginal operating profits?
4. What are the penalties for not meeting the covenants?
5. How the company is placed on Corus pension liabilities? Any hedging or derivative instruments company has taken?
6. Impact of devaluation of GBP and Euro on your profitability and balance sheet?
Strategic Issues
1. How does the company propose to grow over the next five years?
2. What is the strategy on captive raw material resources? When should we expect production of coking coal from
Mozambique and iron ore from Canada?
3. How does the company view the possible entry of Posco and Arcelor Mittal in India?
4. What is the view on consolidation in the global steel market? Are there any acquisition plans for the future?
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel
Turnaround story
Event
Tata Steel is the world’s sixth largest steel company with over 29mtpa of
steel capacity. Its steel manufacturing plants are located in India, Netherlands,
UK, and Thailand, among others. In India, the operations are largely
integrated with captive raw materials.
Its Indian operations contribute 25% of sales and 70% of EBITDA. However,
Corus, its UK arm, contributes 60% of sales, and its EBITDA contribution is
expected to be about 25% in FY2012.
Impact
Increasing capacity in India: India operations will continue to remain strong,
and we expect EBITDA/ton of $400 for FY11. Tata Steel has continued to
invest in growth projects to secure earnings growth. Tata Steel is expanding
its Jamshedpur works crude steel capacity from 6.8 MTPA to 10 MTPA. The
company also has proposed three Greenfield steel projects in the states of
Jharkhand, Orissa and Chhattisgarh.
Corus remains the key to recovery: We expect EBITDA of US$3.9bn on
consolidated basis in FY2011, with Corus expected to earn $57/ton of
EBITDA. Recovery in volume at Corus remains the key driver and that
remains on track with capacity utilisation now touching 80%.
Raw material initiative – can make Corus more valuable: Tata Steel has
completed the feasibility study at the DSO iron ore project at Canada and can
produce 4mnt iron ore by 2011 at estimated capex of C$300m. Also, its
coking coal project in Mozambique is likely to start some production by 2011.
Action and recommendation
Increased visibility on medium term triggers: The company expects to
complete its ongoing 3m tonnes expansion in India by Dec 2010, production
of coking coal at Mozambique from Jan 2011 and iron ore production from
Canada from May 2011. It also expects to commence construction at its
Kalinga Nagar project in the next few months.
Tata steel is the best stock to play the rebound, in our view: Its Indian
operations should benefit from rising raw materials costs due to its integrated
nature, while its European arm should gain from improving volumes. It
remains our top pick in the steel names. We rate it Outperform with a target
price of Rs863.
Tata Steel Aide Memoire
Operational Issues
1. What is the cash cost of HRC (hot rolled coil) for Indian and European operations?
2. What steps are you taking to reduce cost? What are the fixed costs at Corus? Plans for reducing the same? What is the
breakeven sales and EBITDA per ton for Corus?
3. Has there been any improvement in the demand scenario? What is the inventory situation? Which of the markets are worst
hit? Do you have flexibility to change product mix to suit market conditions?
4. What is the volume guidance for FY12?
5. What is your expectation of raw material contracts for FY2012? How do you handle the left over contracted raw material
quantities, if production is to be reduced? Do your contracts allow forgoing them without any penalty?
Financial Issues
1. How much is the gross debt at both Corus and consolidated levels? What is the structure, tenure and cost of these debts?
What debt:equity are you comfortable at?
2. What are plans for further refinancing? How much of capex is planned? What is the dependence of internal accruals to
meet the above capex + refinancing?
3. What are the debt covenants? How is the company placed to meet them assuming low capacity utilization at Corus with
marginal operating profits?
4. What are the penalties for not meeting the covenants?
5. How the company is placed on Corus pension liabilities? Any hedging or derivative instruments company has taken?
6. Impact of devaluation of GBP and Euro on your profitability and balance sheet?
Strategic Issues
1. How does the company propose to grow over the next five years?
2. What is the strategy on captive raw material resources? When should we expect production of coking coal from
Mozambique and iron ore from Canada?
3. How does the company view the possible entry of Posco and Arcelor Mittal in India?
4. What is the view on consolidation in the global steel market? Are there any acquisition plans for the future?
No comments:
Post a Comment