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Tata Steel (Tata) is the lowest cost producer of steel in India, and after the acquisition
of Corus (which is several times its size) it has become the sixth largest steel maker in
the world. The combined entity (Tata-Corus) has its business spread over Europe, the
UK, Asia, North America and the Rest of the World. Tata-Corus (27mtpa) has ~22%
raw material security and plans to increase it to 50-60%. Production will increase to
34mtpa through brownfield expansions at Jamshedpur and greenfield projects
in Orissa
Key Investment Arguments:
Tata Steel will embark upon a new earnings growth path, with expansion of capacity from
6.8mtpa to 10mtpa at Jamshedpur, start of coking coal production at Bengal project,
Mozambique, and start of iron ore production at DSO, Canada over 12-15 months.
Tata Steel's focus is now shifting towards high RoE projects rather than pure strategic
investments. It has sold ~Rs12b of its investments in group companies like TCS, Tata Power
and Tata Motor to unlock value in FY10 and FY11, with further potential of USD873m over
2-3 years.
Steel prices have recovered by 10-15% across the world over the past one month due to
end of de-stocking, supply correction, and raw material cost pressures. HRC prices have
risen to USD670/tonne.
Demand is likely to pick up over the next couple of months, as buyers return to the market
post winter vacations in the western world. A strong steel price scenario is expected for 4-
5 months.
Valuation and view:
We have upgraded TATA STEEL to BUY with target price of Rs. 1017, an upside of Rs.
54%. We expect EPS to grow at a CAGR of 16% to Rs100.2 over FY11- FY13. We have
valued Indian operations at EV/EBITDA of 6.5x, TSE at EV/EBITDA of 5x and investments
at current market value. We believe that the value of investments will grow, as iron
ore and coking coal production ramp up.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel (Tata) is the lowest cost producer of steel in India, and after the acquisition
of Corus (which is several times its size) it has become the sixth largest steel maker in
the world. The combined entity (Tata-Corus) has its business spread over Europe, the
UK, Asia, North America and the Rest of the World. Tata-Corus (27mtpa) has ~22%
raw material security and plans to increase it to 50-60%. Production will increase to
34mtpa through brownfield expansions at Jamshedpur and greenfield projects
in Orissa
Key Investment Arguments:
Tata Steel will embark upon a new earnings growth path, with expansion of capacity from
6.8mtpa to 10mtpa at Jamshedpur, start of coking coal production at Bengal project,
Mozambique, and start of iron ore production at DSO, Canada over 12-15 months.
Tata Steel's focus is now shifting towards high RoE projects rather than pure strategic
investments. It has sold ~Rs12b of its investments in group companies like TCS, Tata Power
and Tata Motor to unlock value in FY10 and FY11, with further potential of USD873m over
2-3 years.
Steel prices have recovered by 10-15% across the world over the past one month due to
end of de-stocking, supply correction, and raw material cost pressures. HRC prices have
risen to USD670/tonne.
Demand is likely to pick up over the next couple of months, as buyers return to the market
post winter vacations in the western world. A strong steel price scenario is expected for 4-
5 months.
Valuation and view:
We have upgraded TATA STEEL to BUY with target price of Rs. 1017, an upside of Rs.
54%. We expect EPS to grow at a CAGR of 16% to Rs100.2 over FY11- FY13. We have
valued Indian operations at EV/EBITDA of 6.5x, TSE at EV/EBITDA of 5x and investments
at current market value. We believe that the value of investments will grow, as iron
ore and coking coal production ramp up.
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