Tata Steel Fsa - Final Presentation

“We think we started on sound and straightforward business principles, considering the interests of the shareholders our own and the health and welfare of the employees, the sure foundation of our success.”

- Jamsetji N Tata, Founder

Financial Statement Analysis of

Anupam Kaushik (16) Niket Khatri

(17)

Subodh Mallya

(18)

Jaimin Patwa

(19)

Dhruvin Shah

(20)

Scope of Presentation

Reports Corus Acquisition Financial Statements Balance Sheet Profit & Loss Account Cash Flow Statement Ratios & Interpretation

Corporate Governance Freedom to Executives to run the Enterprises without undue restraints Freedom of Management within a framework of effective accountability Utilize resources in a manner that meets stakeholders’ aspirations and societal expectations. Corporate Governance Structure Board of Directors Sharpens the accountability of the Management Protect/enhance Shareholder’s wealth Set Strategic Goals. Corporate Management Committee Operates under strategic supervision of the Board Towards achievement of goals Strategic Business Units Enhance quality, efficiency and effectiveness of the business Realize objectives of the Organizations.

Director’s Report and MDA Milestones achieved during 2006-07: Entered into its Centenary year. Incorporated on 17th August 1907. Highest turnover and profits. Acquired the Corus Group.

Global Economic Scene: Global growth momentum. Global economy growth in 2006-07 was 3.9% due to continuation of strong growth in developing and emerging economies as well as recovery in the Euro area. Asia prime mover of growth, with China and India dominating the world economic scene. Indian economy growing @9.4%; Second highest only after China.

Director’s Report World Steel Scenario Accelerated in the last 4-5 years. World’s steel consumption increased by 50% from 775 MT in 2001 to 1113 MT in 2006. Representing 7.5% CAGR, as compared to modest 1% CAGR in the previous 3 decades till the year 2000. World steel production kept pace with an increase of 8.9% during 2006 over the previous year.

Domestic Steel Scenario: Domestic steel production –up by 11.1% Domestic Steel Consumption – up by 11.7% Indian economy could sustain an annual growth of 8-9% in the long term. This could translate into a 10% rise in annual steel demand over the next 10 years.

Main drivers of growth: Expected large investment in Infrastructure Large-Scale construction activities. Sustained rise in demand for auto and white goods from rising middle class in the country. Robust steel demand globally enabled steel price to remain buoyant But there is significant pressure on margins from increased raw material prices on nonintegrated steel players.

Steel Outlook for next 5 years

Growth in Automobiles

Growth in Capital Goods

Growth in Construction Source : Adapted Reports from Tata Steel

Director’s Report Business Results: •

Best ever Sales turnover and profitability.

•

Jamshedpur plant became 1st Plant in India to produce more than 5 million tonnes of crude steel in a year

•

Robust Indian economy, firm steel prices, higher volumes and several improvement initiatives contributed to record performance.

•

Finished steel sales = 4.51 Million tonnes (11.33% up).

•

Average price realization improved due to higher price of hot rolled coils/ sheets.

•

Higher operating profits of Rs 6973 Cr (up 17%)

•

Upgraded ‘G’ Blast furnace produced over 2 million tonnes of hot metal (its capacity is 1.8 million tonnes).

•

Rs 152 Crores provided toward employees separation scheme (up three fold from Rs 53 Crores)

Director’s Report Dividend Details Recommended 130% dividend and Special dividend of 25%. Dividend payout work out to be 26.15% (against 23.4% last yr)

Director’s Report Financial Health of Tata Steel No major borrowings undertaken Entire funds for capital expenditure were met from internal generation. Surplus Cash reserves –temporarily invested in money market mutual funds to facilitate liquidity. Propose to infuse USD 4.1 billion as equity to part finance the transaction. Undertaken a long-term debt of USD 6.14 billion from a consortium of banks through Tata Steels –UK (its subsidiary)

Review of Operations (Best ever production) 7.3% increase in Production of Hot metals (5.55 million tonnes) 6.7% increase in the production of Crude Steel 8.3% increase in the saleable steel (4.93 million tonnes) 5% increase in the production of Hot Strip mills (3.24 million tonnes) Set up a modern beneficiation plant to reduce the alumina content in the iron-ore.

Corus Deal - - Position in Steel Cycle

Singa pore

JAPA N

EU

US A

CHIN A

INDI A

Source : Adapted Reports from Tata Steel

Corus Deal - Financing Details of Financing of Corus Deal

100 %

• The Net Funding Requirement of Corus is Rs.56,150 crores (USD 12.90 billion) • Tata Steel gave a loan to Tata Steel Asia Holdings (TSAH) of Rs. 11,750 crores

100 %

100 %

100 %

• TSAH raised bridge loans of Rs. 10,900 crores • Tulip UK Holding raised a mezzanine loan of Rs. 2,600 crores. • Thus a total of Rs. 25,250 crores were infused into Tata Steel UK Limited by way of Equity. • Tata Steel UK Limited raised senior debts and mezzanine loans of 30,900 crores. The total of Rs. 56,150 crores was used to pay for the Corus Acquisition

Corus Deal – Impact

Key Points: The estimates suggest that the combined entity would continue to generate a growth rate in excess of 28%. The ROCE & ROE would dip significantly on the merger, but would then start increasing. Most Importantly, the huge Interest and Principal Repayment obligations would be met.

Source: ENAM Securities

Profit & Loss Account Consolidated Profit & Loss Account for year ended 31st March, 2007

Profit & Loss Account Consolidated Profit & Loss Account for year ended 31st March, 2007

Year

Mar 07(12) 

Mar 06(12) 

%age Change

INCOME:   Sales Turnover Excise Duty   Net Sales   Other Income   Stock Adjustments   Total Income

27,437.29 22,272.14 2,319.51

2,027.71

25,117.78 20,244.43 723.42

348.98

540.22

47.00

26,381.4 20,640.41 2

23% 14% 24% 107% 1049% 28%

Profit & Loss Account Consolidated Profit & Loss Account for year ended 31st March, 2007   EXPENDITURE: Year  Raw Materials   Power & Fuel Cost   Employee Cost   Other Manufacturing Expenses   Selling & Administration Expenses   Miscellaneous Expenses   Less: Pre-operative Expenses Capitalised   Total Expenditure   Operating Profit   Interest   Gross Profit   Depreciation   Profit Before Tax

Mar 07(12) 

Mar 06(12) 

9,171.39

6,705.76

1,600.71

1,133.70

2,030.03

1,719.77

2,653.73

2,084.09

1,916.90

1,625.33

1,404.19

978.51

353.60

189.66

18,423.35 14,057.50 7,958.07 6,582.91 634.07

207.56

7,324.00

6,375.35

1,010.98

860.37

6,313.02 5,514.98

%age Change 37% 41% 18% 27% 18% 44% 86% 31% 21% 205% 15% 18% 14%

Profit & Loss Account - Analysis

Debenture Interest Increased even with Decrease in Debentures

Profit & Loss Account Consolidated Profit & Loss Account for year ended 31st March, 2007 Mar %age Year Mar 06(12)  07(12)  Change   Profit Before Tax 14% 6,313.02 5,514.98   Tax 31% 2,162.93 1,648.96   Deferred Tax -111% -15.52 144.95   Net Profit before Minority Interest 12% 4,165.61 3,721.07   Minority Interest 262% 67.52 18.64   Net Profit After Minority Interest 11% 4,098.09 3,702.43   Extraordinary Items 7958% -76.55 -0.95 Adjusted Net Profit 13% 4,174.64 3,703.38   Adjst. below Net Profit -14% 11.66 13.55   P&L Balance brought forward 72% 3,298.06 1,920.31   Appropriations 12% 2,634.94 2,356.87   P&L Balance carried down 47% 4,840.39 3,298.06   Dividend 31% 942.87 718.64   Equity Dividend(%) 19% 155.00 130.00   EPS before Minority Interest (Unit Curr.) 5% 69.00 65.42   EPSafterMinorityInterest(UnitCurr.) 4% 67.84 65.08

Profit & Loss Account - Analysis

Balance Sheet

Balance Sheet Consolidated Balance Sheet as on year ended 31st March, 2007

   Year

Mar 07  Mar 06 

  SOURCES OF FUNDS :  Share Capital   Reserves Total   Total Shareholders Funds    Minority Interest  Secured Loans   Unsecured Loans   Total Debt    Total Liabilities

  580.00 13,895.14

  553.00 9,728.84

14,475.14 10,281.84 598.39 123.57 4,961.23 19,964.30

2,503.39 874.04

24,925.53 3,377.43 39,999.06 13,782.84

Balance Sheet Consolidated Balance Sheet as on year ended 31st March, 2007   APPLICATION OF FUNDS :      Gross Block 20,303.44 16,744.68    Less: Accumulated Depreciation 9,189.62 7,199.99   Net Block 11,113.82 9,544.69    Lease Adjustment  Capital Work in Progress 3,326.37 1,357.41   Investments 16,497.50 3,478.90   Current Assets, Loans & Advances      Inventories 3,888.13 2,773.31   Sundry Debtors 1,686.53 1,218.72  Cash and Bank 10,887.96 776.75   Loans and Advances 1,981.50 1,139.28   Total Current Assets 18,444.12 5,908.06    Less : Current Liabilities and Provisions       Current Liabilities 5,608.71 3,292.51  Provisions 3,197.87 2,477.54    Total Current Liabilities 8,806.58 5,770.05   Net Current Assets 9,637.54 138.01   Miscellaneous Expenses not written off 209.77 256.01   Deferred Tax Assets 989.19 779.31    Deferred Tax Liability 1,775.13 1,771.49   Net Deferred Tax -785.94 -992.18    Total Assets 39,999.06 13,782.84  Contingent Liabilities 2,477.64 2,383.09

Balance Sheet - Analysis CRISIL - Rating of Loans & Advances by Tata Steel Limited

Cash Flow Statement Objective of Cash Flow Analysis The Cash Flow Analysis is aimed at Analyzing the Inflow and Outflow of Cash of the company from its Operating, Investing & Financing Activities We hope to clear the following aspects of the Cash Flow Statement of Tata Steel from our Analysis: How strong is the Cash Flow of the Company Does the Cash Flow of the company have the ability to meet its short term and long term objectives such as Interest Payments Did the Company have enough funds to pay the Dividend through Internal Sources or did it need external debt. Does the company generate excess cash from operating activities.

Cash Flow Statement - Analysis Cash Flow Summary Cash and Cash Equivalents at Beginning of the year Net Cash from Operating Activities

1,192.90 5,503.01

Net Cash Used in Investing Activities

-16,288.23

Net Cash Used in Financing Activities

20,480.28

Net Inc/(Dec) in Cash and Cash Equivalent Cash and Cash Equivalents at End of the year

9,695.06 10,887.96

Cash Flow Statement

Cash Flow Statement …..cont’d

Accounting Ratios Financial Performance Measures By Area & User

Accounting Ratios Operational Analysis •

Gross Profit Margin

•

Net Profit Margin

Resource Management •

Asset Turnover

•

Inventory Turnover

Profitability & Disposition of Earnings •

Return on Assets

•

Return on Equity

•

EPS

Liquidity •

Current Ratio

Financial Leverage •

Debt to Equity

Accounting Ratios Gross Profit Margin Expressed as a Ratio between Net Sales (Sales – Cost of Sales) Turnover Net Profit Margin Expressed as a Ratio between EBITDA (Net Sales – Expenses) Turnover

Analysis Percentage of Selling & Administrative Expenses have remained constant at around 16-17%. Manufacturing Costs are range bound between 40 – 43 % for past 3 years

Accounting Ratios Earnings Per Share Expressed as a Ratio between Profit After Tax Total Number of Shares Outstanding

Price – Earnings Ratio Expressed as a Ratio between Market Price of Share EPS

Analysis The Earnings of the Company has increased, yet the PE Multiple has decreased. One of the reasons is that the Price of the Share has not gone up as much as the profit

Accounting Ratios

SWOT Analysis

SWOT Analysis – Tata Steel Strengths

Weaknesses

• 6th Largest Steel Manufacturer in the World

Large debt of Rs.35,000 crores after CORUS acquisition

• Combined Capacity of 28.2 Million Tonnes – 3 times current capacity

Pressure on Margins due to Increased Capacity

• More than 100 years experience in the Steel Industry

Short Term Operational Issues, till CORUS Takeover synergies start working.

Opportunities

Threats

• UK Steel Market is available to Tata Steel for selling its products

Bringing Operational Synergies within the Leverage Return Time

• Consistent Growth Rate could take the TATA-CORUS combine to 4th place within the next 3-4 years

Consolidation in the Top 3 positions that might hurt margins even further Arcelor Mittal’s Presence in Markets in the UK poses an imminent threat

Thank You ???? Questions