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1. STOCK ANALYSIS – TATA STEEL
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CONTENTS
Introduction
Company profile
Financials
Fundamental analysis
Fundamental factors
Technical Analysis
Pivot Point
Daily chart
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Introduction
Established in 1907, Tata Steel is among the top ten global steel companies with an
annual crude steel capacity of over 28 million tonnes per annum (mtpa). It is now one of
the world's most geographically-diversified steel producers, with operations in 26
countries and a commercial presence in over 50 countries.
Tata Steel is also India's second-largest and second-most profitable private-sector
company
Tata Steel’s vision is to be the world’s steel industry benchmark through the excellence
of its people, its innovative approach and overall conduct. Underpinning this vision is a
performance culture committed to aspiration targets, safety and social responsibility,
continuous improvement, openness and transparency.
Tata Steel’s larger production facilities include those in India, the UK, the Netherlands,
Thailand, Singapore, China and Australia. Operating companies within the Group
include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), NatSteel,
and Tata Steel Thailand (formerly Millennium Steel).
Areas of business
The company produces crude steel and basic steel products, and makes steel for
building and construction applications through Tata BlueScope Steel, its joint venture
with Australia's BlueScope Steel. Tata Steel has also set up joint ventures for the
development of limestone mines in Thailand, the procurement of low-ash coal from
Australia and coking coal from Mozambique, and the setting up of a deep-sea port in
Orissa in India.
The company is exploring opportunities in the titanium dioxide business in Tamil Nadu,
India, and will soon be producing high carbon ferrochrome from its plant in South Africa
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STOCK INFORMATION
Sector Metal
Market cap Rs. 41,533.36 cr
Face value Rs. 10
Book value Rs. 386.01
Eps(ttm basis) Rs. 71.56
52 week h/l Rs. 737/ 418.3
Credit- deposit 76.11%
Dividend 120%
Managing director B Muthuraman
Listed at NSE/BSE/LSE
Equity capital Rs. 959.41cr
SHARE HOLDING PATTERN
(in %) 11-JUN 11-MAR 10-DEC
Promoter 30.6 30.6 32.53
FII 17.06 17.36 16
DII 26.46 26.21 26.37
Others 25.88 25.83 25.1
Total 100 100 100
DIVIDEND SUMMARY
Announcement Date Effective Date Dividend Type Dividend (%)
26-05-11 4/7/2011 Final 120.00
27-05-10 12/7/2010 Final 80.00
25-06-09 6/7/2009 Final 160.00
26-06-08 18-07-08 Final 160.00
17-05-07 8/6/2007 Final 155.00
15-05-06 26-05-06 Final 130.00
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Financials
Balance Sheet of Tata Steel (Rs. Cr.)
Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Sources Of Funds
Equity share
959.41 887.41 730.79 730.78 580.67
capital
Share application
178.2 - - - 147.06
money
Preference share
- - 5,472.66 5,472.52 -
capital
Reserves &
45,807.02 36,281.34 23,501.15 21,097.43 13,368.42
surplus
Secured loans 3,509.20 2,259.32 3,913.05 3,520.58 3,758.92
Unsecured loans 26,291.94 22,979.88 23,033.13 14,501.11 5,886.41
Total 76,745.77 62,407.95 56,650.78 45,322.42 23,741.48
Application Of Funds
Gross block 29,815.64 22,306.07 20,057.01 16,479.59 16,029.49
Less : revaluation
- - - - -
reserve
Less : accumulated
11,041.16 10,143.63 9,062.47 8,223.48 7,486.37
depreciation
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Net block 18,774.48 12,162.44 10,994.54 8,256.11 8,543.12
Capital work-in-
- 3,843.59 3,487.68 4,367.45 2,497.44
progress
Investments 46,564.94 44,979.67 42,371.78 4,103.19 6,106.18
Current assets,
24,212.30 13,425.27 11,591.66 38,196.34 14,671.91
loans & advances
Less : current
liabilities & 12,805.95 12,003.02 11,899.95 9,755.78 8,279.70
provisions
Total net current
11,406.35 1,422.25 -308.29 28,440.56 6,392.21
assets
Miscellaneous
expenses not - - 105.07 155.11 202.53
written
Total 76,745.77 62,407.95 56,650.78 45,322.42 23,741.48
Key Ratios
Ratios Mar '11 Mar '10 Mar '09 Mar '08 Mar '07
Op Profit Margin(%) 39.00 35.7 37.68 41.94 39.61
Net Profit Margin(%) 22.81 19.96 21.09 23.43 23.53
Current Ratio 1.89 1.12 0.91 3.81 1.69
Debt Equity Ratio 0.64 0.68 1.34 1.08 0.69
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Key Extracts
Even while steel prices have declined ~12% in Europe from peak in Mar’11 on
de-stocking and weak summer demand, operating cost is set to rise QoQ in
Q2FY12 on usage of high cost raw material. This would keep margin
under pressure in Q2 and Q3. Although steel demand growth has declined in India
due to slowdown in auto and infrastructure and construction projects, TSI has
benefited from reduced output due to iron ore supply shortage in Karnataka,
increasing the premium and sales volume.
Further, the company has de-risked itself from a slowdown in projects by
strengthening their retail presence through 2,800 strong dealer network. However,
EBITDA/t could contract QoQ in Q2 as impact of high cost coking coal comes
through (we estimate a decline of ~10% QoQ).
While the company has temporarily mothballed 0.5mntpa MBF in Thailand due to
high raw material cost, the operation in Singapore is impacted by high electricity
charges. Nevertheless, south-east Asian operations are expected to fare better
compared to last year.
Although there are concerns on demand and margin in the near term, structural
improvement in the health of the company would be driven by
1. A revival of demand in India led by FAI growth of 7.5-8%,
2. Rising share of highly profitable Indian operations,
3. Cost cutting measures at TSE to reduce conversion cost further, while maintaining
FY12E output target of 15.0mnt
4. Partial raw material integration in TSE with commencement of mining in Bengal
project (coal) and DSO project (iron ore). With these developments, TSE’s
EBITDA could improve significantly in 2-3 years time.
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Fundamental View
Jamshedpur is on track for completion by Q4FY12. Although the project is expected
to make little contribution in FY12E, the target for FY13E is 1.9-2.0mnt and full
output is expected in FY14E.
Phase 1 of 5.3mnt ROM (1.7mntpa hard coking coal and 0.4mntpa export-grade
thermal coal) is to be commissioned by Jan'12 and would take 9-10 months to
stabilize. Out of USD150mn (Tata Steel’s equity investment for 35% stake), they
have already spent USD110mn.
Phase II (10mnt ROM) and phase III (20mnt ROM) would happen subsequently, and
would need significant investment in development of transportation and port
infrastructure.
Although the total capex required to start the 4.0mntpa of iron ore output (grade of
58% Fe) from DSO project by Q2FY13E is USD500mn, with Tata Steel’s
equity contribution for 80% stake being USD120mn, not much investment has
been made yet.
Other project of New Millennium, Taconite is a long drawn project, with
feasibility study expected to take 2 years. Tata Steel has an option to take 65%
stake in the project post feasibility study.
The 1st phase of 3.0mntpa in Kalinganagar is progressing well and the project is
expected to commission by FY14-end.
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Technical View
Pivot Points (Daily)
SCRIPT R4 R3 R2 R1 P S1 S2 S3 S4
Tata Steel 471 458 445 438 432 425 419 406 393
Pivot Points (Weekly)
SCRIPT R4 R3 R2 R1 P S1 S2 S3 S4
Tata Steel 551 514 477 454 432 417 403 366 329
Moving Averages
Moving Averages 20 Day 50 Day 100 Day 200 Day
Daily 469 494 535 579
Weekly 536 588 578 538
Fibonacci Retracement
% Levels 0.0% 23.6% 38.2% 50.0% 61.8% 76.4% 100%
Weekly 739 598 510 438 369 281 140
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Chart Analysis
Tata Steel has been in downtrend since the starting of this year as it has made a classic
double top formation at the level of 739 and since then making lower tops and lower
bottoms. Also, it has made a inverted head and Shoulder on the weekly chart and failed
to break its neckline due to which we are seeing a continuous downtrend in it.
The stock is working well with its Fibonacci retracement of uptrend from 148 (08) to
749(2011) and at presently is sustaining the level of 50% and crucial level of 420.
Tata Steel in coming weeks if breaks the level of 50% and the crucial support level of
420 on the weekly chart then can slide downward to 61.8% retracement level of 370
and then 76.4% level of 284. However, we can see a pullback rally from the level
of 370 to the level of 400 as 61.8% will act as a major support.
Also, Tata Steel has underperformed compared to Nifty in the last 4 years and in that
case, If Nifty breaks the level of 4800 in coming weeks, then there is a very high
probability of a sharp downtrend in Tata Steel.
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