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Tata Steel will increase capital expenditure across the group with immediate focus towards i)
2.9mt expansion at Jamshedpur ii) $320mn investment in Port Talbot, UK and iii) Greenfield
expansion at Odisha. Near term earnings to remain flat. Maintain BUY
Increased capital allocation:
Tata Steel's immediate focus is towards commissioning its new 2.9mt steel making
capacity at Jamshedpur by FY12 taking its total India steel making capacity to 9.7mt at a
cost of $3.3bn.
The Odisha project will be set-up in 2 phases of 3mt each with the first phase expected to
go onstream by FY14.
The European investments are focus towards value accretion with immediate focus
towards spending $320mn at Port Talbot to increase life and also raise capacity by
0.4mt.
Riversdale Benga project: Tata Steel owns a 35% stake in the JV with Riversdale and
40% offtake agreement. Company expects output of 1.7mt of hard coking coal and 0.3mt
of thermal coal by 2HCY2011.
Direct Shipping Ore Project in Canada: This project will produce 4mt of iron ore products
from 2HCY2012 and will supply ore to Tata Steel Europe.
Dhamra Port: The Dhamra Port Company Ltd is a 50:50 JV between Tata Steel and
Larsen & Toubro. Phase I of the project is complete and the port has started commercial
operations May 6, 2011 and has a capacity of 27mtpa.
FY11 performance:
Overall sales volumes of 23.5mt (-0.5%yoy). India volumes were at 6.4mt (+4%yoy),
European volumes at 14.87 (+3%yoy).
India business reported sales of flat products at 3.54mt (+2%yoy), long product sales of
2.88mt (+7%yoy). Ferro alloy sales including minerals reported sales volumes of 848KT
(+8%yoy), sales of fluxes were 613KT (-15%yoy).
European operations operated at a capacity utilization of 79.5%. Distribution and Sales
Network and Speciality Steel divisions reported the highest yoy volume growths at 13% and
12% respectively. However, the Long Products Europe division reported a 20% yoy drop.
Cash Flow & Balance Sheet:
Sharp drop in free cash from operations. Tata Steel generated free cash from operations of
$1.45bn (-38.5%yoy) due to an increase in working capital at Tata Steel Europe by about
$1.6bn.
$2.3bn was invested towards capex, mostly in India.
Net debt increased by $840mn to $10.7bn (we treat hybrid perpetual securities as debt).
Outlook :
We expect investor focus to now shift to the timely commissioning of the new 2.9mt blast
furnace at Jamshedpur which is expect to come onstream by the end of CY2011.
Tata Steel has raised $1.1bn through the sale of its 27% stake in Riversdale and would
further raise $118.8mn through conversion of warrants issued to promoters. However, we
expect free cash from operations to continue to remain subdued on account of elevated raw
material prices. We estimate capital expenditure at $2.5bn for the year.
We expect flat earnings for FY12 on account of limited volume growth, weakish steel prices
and elevated raw material prices impacting performance at European operation.
We have a BUY rating on Tata Steel with a TP of Rs640/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel will increase capital expenditure across the group with immediate focus towards i)
2.9mt expansion at Jamshedpur ii) $320mn investment in Port Talbot, UK and iii) Greenfield
expansion at Odisha. Near term earnings to remain flat. Maintain BUY
Increased capital allocation:
Tata Steel's immediate focus is towards commissioning its new 2.9mt steel making
capacity at Jamshedpur by FY12 taking its total India steel making capacity to 9.7mt at a
cost of $3.3bn.
The Odisha project will be set-up in 2 phases of 3mt each with the first phase expected to
go onstream by FY14.
The European investments are focus towards value accretion with immediate focus
towards spending $320mn at Port Talbot to increase life and also raise capacity by
0.4mt.
Riversdale Benga project: Tata Steel owns a 35% stake in the JV with Riversdale and
40% offtake agreement. Company expects output of 1.7mt of hard coking coal and 0.3mt
of thermal coal by 2HCY2011.
Direct Shipping Ore Project in Canada: This project will produce 4mt of iron ore products
from 2HCY2012 and will supply ore to Tata Steel Europe.
Dhamra Port: The Dhamra Port Company Ltd is a 50:50 JV between Tata Steel and
Larsen & Toubro. Phase I of the project is complete and the port has started commercial
operations May 6, 2011 and has a capacity of 27mtpa.
FY11 performance:
Overall sales volumes of 23.5mt (-0.5%yoy). India volumes were at 6.4mt (+4%yoy),
European volumes at 14.87 (+3%yoy).
India business reported sales of flat products at 3.54mt (+2%yoy), long product sales of
2.88mt (+7%yoy). Ferro alloy sales including minerals reported sales volumes of 848KT
(+8%yoy), sales of fluxes were 613KT (-15%yoy).
European operations operated at a capacity utilization of 79.5%. Distribution and Sales
Network and Speciality Steel divisions reported the highest yoy volume growths at 13% and
12% respectively. However, the Long Products Europe division reported a 20% yoy drop.
Cash Flow & Balance Sheet:
Sharp drop in free cash from operations. Tata Steel generated free cash from operations of
$1.45bn (-38.5%yoy) due to an increase in working capital at Tata Steel Europe by about
$1.6bn.
$2.3bn was invested towards capex, mostly in India.
Net debt increased by $840mn to $10.7bn (we treat hybrid perpetual securities as debt).
Outlook :
We expect investor focus to now shift to the timely commissioning of the new 2.9mt blast
furnace at Jamshedpur which is expect to come onstream by the end of CY2011.
Tata Steel has raised $1.1bn through the sale of its 27% stake in Riversdale and would
further raise $118.8mn through conversion of warrants issued to promoters. However, we
expect free cash from operations to continue to remain subdued on account of elevated raw
material prices. We estimate capital expenditure at $2.5bn for the year.
We expect flat earnings for FY12 on account of limited volume growth, weakish steel prices
and elevated raw material prices impacting performance at European operation.
We have a BUY rating on Tata Steel with a TP of Rs640/share.
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