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What’s the theme?
We expect Tata Steel's EBITDA to grow at 5% CAGR over FY11-13E, driven by: 1) Improving share of
highly profitable integrated Indian operations with completion of 2.9mntpa brownfield expansion at
Jamshedpur in FY12; 2) Transformation steps taken at TSE (reduced headcount, sale of TCP, downsizing
at Scunthorpe) to improve profitability, 3) Improved capital structure (FY11 net D/E of 1.0x - improved
further to 0.9x on sale of stake in Riversdale mining vs. 1.3x in FY10) and 4) Hedging of high RM cost at
TSE on commencement of mining at Riversdale (1HFY12) and New Millennium (FY13). We find the stock
attractively valued at 5.1x FY12E EV/EBITDA.
What will move the stock?
1) Brownfield expansion of 2.9mntpa at Jamshedpur to increase share of profitable Indian operations
(FY11 EBITDA/t of USD353 vs. consolidated USD138); 2) Improved capital structure with manageable
financial leverage (FY11 net D/E of 1.0x vs. 1.3x in FY10); 3) Progress on raw material integration in TSE;
4) Commencement of coal mining from Benga project in Mozambique, in which Tata Steel has 35% equity
and 40% offtake stake; 5) Expected improvement in steel profitability as high raw material prices ease.
Where are we stacked versus consensus?
Our consol.estimates are lower than the street. We value Tata Steel at Rs713 using SOTP methodology.
What will challenge our target price?
1) Raw material prices remaining high, squeezing margin for non-integrated operation of TSE resulting in
losses at the EBITDA level; 2) Delay in brownfield expansion; and 3) Delay in commencing mining at
Riversdale/ New Millennium.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
What’s the theme?
We expect Tata Steel's EBITDA to grow at 5% CAGR over FY11-13E, driven by: 1) Improving share of
highly profitable integrated Indian operations with completion of 2.9mntpa brownfield expansion at
Jamshedpur in FY12; 2) Transformation steps taken at TSE (reduced headcount, sale of TCP, downsizing
at Scunthorpe) to improve profitability, 3) Improved capital structure (FY11 net D/E of 1.0x - improved
further to 0.9x on sale of stake in Riversdale mining vs. 1.3x in FY10) and 4) Hedging of high RM cost at
TSE on commencement of mining at Riversdale (1HFY12) and New Millennium (FY13). We find the stock
attractively valued at 5.1x FY12E EV/EBITDA.
What will move the stock?
1) Brownfield expansion of 2.9mntpa at Jamshedpur to increase share of profitable Indian operations
(FY11 EBITDA/t of USD353 vs. consolidated USD138); 2) Improved capital structure with manageable
financial leverage (FY11 net D/E of 1.0x vs. 1.3x in FY10); 3) Progress on raw material integration in TSE;
4) Commencement of coal mining from Benga project in Mozambique, in which Tata Steel has 35% equity
and 40% offtake stake; 5) Expected improvement in steel profitability as high raw material prices ease.
Where are we stacked versus consensus?
Our consol.estimates are lower than the street. We value Tata Steel at Rs713 using SOTP methodology.
What will challenge our target price?
1) Raw material prices remaining high, squeezing margin for non-integrated operation of TSE resulting in
losses at the EBITDA level; 2) Delay in brownfield expansion; and 3) Delay in commencing mining at
Riversdale/ New Millennium.
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