Tata Steel - Management conversation takeaways:: JPMorgan,

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 Europe- Demand, Profitability, pension and cash flow update: TATA
expects to be EBITDA positive in Europe next year. Sept and Dec are
traditionally weak quarters given weak demand and ASP-RM mis-match. This
time the situation has been exacerbated by de-socking at the trade level and
hence the seasonal pick up post September is very muted so far. TATA Europe
has materially reduced exposure to the construction/long product market
with currently only 3MT of 15MT sales in the longs segment. TATA expects a
sharp sequential decline in Europe profitability (Q1 EBITDA/MT at
$78/MT). We believe TATA Europe should be able to report a modestly
positive EBITDA/MT ($5-15/MT) in the Sep/Dec quarters before
rebounding in March-12E. There are no large scheduled debt repayments
for FY12-13E while there have been large inflows post the TCP sale and the
arbitrage award win (we estimate $600mn cumulative from the above 2 and
excludes working capital related gains). Unlike 2008, we believe there are no
materially restrictive covenants at TATA Europe. On pensions, given the
state of equity markets, we believe while a deficit is likely, TATA has
highlighted that any potential deficit payment schedule (if at all
required/decided) would only be known post the triennial negotiation (currently
underway). Working Capital is likely to be a source of funding over the next 2-
3 quarters as RM costs come off. We believe TATA Europe capex is likely to
be in sync with TATA Europe earnings. We expect continued re-structuring in
European operations given the external environment.
 TATA India- Orissa capex, profitability, convertibles MTM impact: TATA
expects crude steel production of 1.8-1.9MT from the new Jamshedpur
expansion (on track for commissioning by March-12) v/s JPM estimate of
1.4MT. We estimate India EBITDA/MT to remain in the $400/MT range in the
Sept and Dec qrtrs, though sharp INR depreciation means potential MTM
impact from existing convertibles (We estimate MTM impact in Sept-11 quarter
on a worst case basis to be Rs5.4bn for the CARS/Converts). We expect
spending on Orissa capex to be likely ahead of company’s earlier guidance as
work on the ground is moving at a quick pace.
Valuations: TATA is trading at 4.9x FY13E EV/EBITDA and headline P/B of
0.9x FY13E. While Europe is a key segment, we believe key risk to
consolidated cash flows and earnings come from a collapse in iron ore prices.