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Tata Steel
Comment from RBS India Access
Tata Steel management presented at RBS's India Access Conference in Mumbai.
Some of the key takeaways are: 1) Benga project to produce 6.5mt hard coking
coal by FY14. 2) Management believes Riversdale Mining is undervalued. 3) Both
brownfield and greenfield expansion plans are progressing on schedule.
Benga project to produce 6.5mt hard coking coal by FY14
! Management indicated that the JV Benga project with Riversdale could produce 6.5mt of hard
coking coal by FY14. With 40% off-take rights in the project, Tata Steel will be entitled to
2.6mt. Investments of US$60m have already been made in the Benga project and a further
investment of US$350m is expected to be made over the next 2 years. Tata Steel has a 35%
stake in JV with 40% off-take rights to the coking coal produced from these mines. The JV
owns the Benga and Tete tenements which cover an area of 24,960 hectares. Benga has
inferred resources of about 4bn tonnes.
Investment in Riversdale strategic
! Management noted that Riversdale, with indicated and proven reserves of over 4bn tonnes of
coal, is significantly undervalued currently with similar companies in this space trading at a
higher valuation. We note that with Rio Tinto's takeover offer of Riversdale Mining still open,
Tata Steel has increased its stake in Riversdale Mining to 27.1% from 24.2% for A$100m
earlier this week, as reported in The Economic Times on 3 March.
Restructuring at Tata Steel Europe to continue
! Management highlighted that they plan to increase the proportion of higher value-added
products at its European operations. Restructuring is expected to continue with the "One
Company" approach. Workforce is already leaner by ~7,000 employees and the company
expects a further reduction of about ~1,000-1,500 employees over the next 2 years. The
company also plans to introduce an element of contract labour by imparting training to its
employees giving it more flexibility in downturns as they can be moved to more productive
functions. Management noted that triennial pension valuation is due in March 2011 and, in
case of a shortfall, the annual contribution could be increased. TCP sale to add US$469m cash
! In end February, Tata Steel announced sale of Teesside Cast Products (TCP) to Sahaviriya
Steel industries, Thailand for US$469m. The transaction is expected to be completed by end
of March.
3mt brownfield expansion at Jamshedpur on schedule
! The 3mt brownfield expansion at Jamshedpur is on schedule to be completed by 2HFY12.
The facility includes blast furnace, LD, slab caster, pellet plant, coke oven and mine
upgradation. The plant includes 2.54 HR coil capacity and 0.3mt slab capacity. Totally,
US$1.8bn is expected to be spent till March 2011.
1st phase of Orissa greenfield expansion progressing well
! Management highlighted that Tata Steel's Orissa greenfield expansion plans are progressing
well. The company is planning to add 6mt of flat products capacity over two phases. The
company expects to add the first phase of 3mt capacity by FY15. Rs10bn has already been
spent on the project, mainly for resettlement and rehabilitation work. Ground work has also
commenced. Orders worth over Rs63bn of equipment and civil structures have been placed
already. Boundary wall and fence has been erected. Batching plant of L&T is being installed.
Setting up of sinter plant has commenced. Infrastructure development like construction,
power, site illumination, approach roads etc are under progress. Allocation of iron ore mines
is pending with the Orissa government.
Indian operations will continue with resource integration
! The company has noted in the past that its Indian operations will continue to be 100%
backward integrated with iron ore. Management updated us on the prospecting raw material
licences procured by the company. These include 1) Ankua mine in Jharkhand which is
spread over 1,808 hectares with over 400mt of indicated reserves. 2) Kothre Basantpur
coking coal block in Jharkhand with ~150mt reserves 3) Ganeshpur thermal coal block has
been allotted to a 2 member consortium with Tata Steel as the lead developer 4) Bailadila
prospecting licence which has expected reserves of 138mt and is meant for the Chattisgarh
project.
European market outlook
! Tata Steel Europe has taken a few price hikes this quarter which should flow through in
1QFY12. Margins are expected to continue to be under pressure with high raw material costs.
Working capital is also expected to increase accordingly.
! We have a Buy rating on Tata Steel with a TP of Rs716.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel
Comment from RBS India Access
Tata Steel management presented at RBS's India Access Conference in Mumbai.
Some of the key takeaways are: 1) Benga project to produce 6.5mt hard coking
coal by FY14. 2) Management believes Riversdale Mining is undervalued. 3) Both
brownfield and greenfield expansion plans are progressing on schedule.
Benga project to produce 6.5mt hard coking coal by FY14
! Management indicated that the JV Benga project with Riversdale could produce 6.5mt of hard
coking coal by FY14. With 40% off-take rights in the project, Tata Steel will be entitled to
2.6mt. Investments of US$60m have already been made in the Benga project and a further
investment of US$350m is expected to be made over the next 2 years. Tata Steel has a 35%
stake in JV with 40% off-take rights to the coking coal produced from these mines. The JV
owns the Benga and Tete tenements which cover an area of 24,960 hectares. Benga has
inferred resources of about 4bn tonnes.
Investment in Riversdale strategic
! Management noted that Riversdale, with indicated and proven reserves of over 4bn tonnes of
coal, is significantly undervalued currently with similar companies in this space trading at a
higher valuation. We note that with Rio Tinto's takeover offer of Riversdale Mining still open,
Tata Steel has increased its stake in Riversdale Mining to 27.1% from 24.2% for A$100m
earlier this week, as reported in The Economic Times on 3 March.
Restructuring at Tata Steel Europe to continue
! Management highlighted that they plan to increase the proportion of higher value-added
products at its European operations. Restructuring is expected to continue with the "One
Company" approach. Workforce is already leaner by ~7,000 employees and the company
expects a further reduction of about ~1,000-1,500 employees over the next 2 years. The
company also plans to introduce an element of contract labour by imparting training to its
employees giving it more flexibility in downturns as they can be moved to more productive
functions. Management noted that triennial pension valuation is due in March 2011 and, in
case of a shortfall, the annual contribution could be increased. TCP sale to add US$469m cash
! In end February, Tata Steel announced sale of Teesside Cast Products (TCP) to Sahaviriya
Steel industries, Thailand for US$469m. The transaction is expected to be completed by end
of March.
3mt brownfield expansion at Jamshedpur on schedule
! The 3mt brownfield expansion at Jamshedpur is on schedule to be completed by 2HFY12.
The facility includes blast furnace, LD, slab caster, pellet plant, coke oven and mine
upgradation. The plant includes 2.54 HR coil capacity and 0.3mt slab capacity. Totally,
US$1.8bn is expected to be spent till March 2011.
1st phase of Orissa greenfield expansion progressing well
! Management highlighted that Tata Steel's Orissa greenfield expansion plans are progressing
well. The company is planning to add 6mt of flat products capacity over two phases. The
company expects to add the first phase of 3mt capacity by FY15. Rs10bn has already been
spent on the project, mainly for resettlement and rehabilitation work. Ground work has also
commenced. Orders worth over Rs63bn of equipment and civil structures have been placed
already. Boundary wall and fence has been erected. Batching plant of L&T is being installed.
Setting up of sinter plant has commenced. Infrastructure development like construction,
power, site illumination, approach roads etc are under progress. Allocation of iron ore mines
is pending with the Orissa government.
Indian operations will continue with resource integration
! The company has noted in the past that its Indian operations will continue to be 100%
backward integrated with iron ore. Management updated us on the prospecting raw material
licences procured by the company. These include 1) Ankua mine in Jharkhand which isspread over 1,808 hectares with over 400mt of indicated reserves. 2) Kothre Basantpur
coking coal block in Jharkhand with ~150mt reserves 3) Ganeshpur thermal coal block has
been allotted to a 2 member consortium with Tata Steel as the lead developer 4) Bailadila
prospecting licence which has expected reserves of 138mt and is meant for the Chattisgarh
project.
European market outlook
! Tata Steel Europe has taken a few price hikes this quarter which should flow through in
1QFY12. Margins are expected to continue to be under pressure with high raw material costs.
Working capital is also expected to increase accordingly.
! We have a Buy rating on Tata Steel with a TP of Rs716.
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