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 Eps(ttm basis) 52 week h/l Credit- deposit
Rs. 386.01 Rs. 71.56 Rs. 737/ 418.3 76.11%
Dividend Managing director Listed at Equity capital
120% B Muthuraman NSE/BSE/LSE Rs. 959.41cr
SHARE HOLDING PATTERN (in %) Promoter FII DII Others Total
11-JUN 30.6 17.06 26.46 25.88 100
11-MAR 30.6 17.36 26.21 25.83 100
10-DEC 32.53 16 26.37 25.1 100
DIVIDEND SUMMARY Announcement Date 26-05-11 27-05-10 25-06-09 26-06-08 17-05-07 15-05-06
Effective Date 4/7/2011 12/7/2010 6/7/2009 18-07-08 8/6/2007 26-05-06
Dividend Type Final Final Final Final Final Final
Dividend (%) 120.00 80.00 160.00 160.00 155.00 130.00
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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 capital
959.41
887.41
730.79
730.78
580.67
Share application money
178.2
-
-
-
147.06
Preference share capital
-
-
5,472.66
5,472.52
-
Reserves & surplus
45,807.02
36,281.34
23,501.15
21,097.43
13,368.42
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 depreciation
11,041.16
10,143.63
9,062.47
8,223.48
7,486.37
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18,774.48
12,162.44
10,994.54
8,256.11
8,543.12
Capital work-inprogress
-
3,843.59
3,487.68
4,367.45
2,497.44
Investments
46,564.94
44,979.67
42,371.78
4,103.19
6,106.18
Current assets, loans & advances
24,212.30
13,425.27
11,591.66
38,196.34
14,671.91
Less : current liabilities & provisions
12,805.95
12,003.02
11,899.95
9,755.78
8,279.70
Total net current assets
11,406.35
1,422.25
-308.29
28,440.56
6,392.21
Miscellaneous expenses not written
-
-
105.07
155.11
202.53
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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