l (TATSTE) | 573content.icicidirect.com/mailimages/IDirect_TataSteel_Q1FY19.pdfBhushan Steel...

August 16, 2018

ICICI Securities Ltd | Retail Equity Research

Result Update

Operationally steady quarter...

Tata Steel reported a steady set of operational Q1FY19 numbers.

Indian operations reported sales volume of 2.97 million tonnes (MT)

(up 8% YoY, down 2% QoQ) marginally lower than our estimate of 3.1

MT. European operations reported steel sales of 2.45 MT (up 1% YoY,

down 5% QoQ) broadly in line with our estimate of 2.4 MT

The consolidated topline came in at | 37833 crore (up 28% YoY, 5%

QoQ). EBITDA/tonne of domestic operations were at | 17078/tonne

(vs. Q4FY18:| 15872/tonne, Q1FY18:| 10786/tonne), marginally higher

than our estimate of | 16500/tonne. European operations reported

EBITDA/tonne of US$102/tonne (vs. Q4FY18: US$70/tonne, Q1FY18:

US$80/tonne), broadly in line with our estimate of US$100/tonne

Consolidated reported EBITDA came in at | 6467.7 crore (up 30%

YoY). During the quarter, the others segment EBITDA was adversely

affected by unrealised non-cash adverse foreign exchange (forex)

movement at the key South East Asian (SEA) financing entities.

Reported EBITDA, thus, came in marginally lower than our estimate of

| 6899.2 crore. Consolidated EBITDA margin was at 17.1% (vs.

Q4FY18: 18%, Q1FY18: 16.8%)

The company reported exceptional expense to the tune of | 344 crore.

The ensuing reported consolidated PAT was at | 1934 crore

Strategic developments to augur well in long run...

During FY18, at its European operations, Tata Steel successfully

separated pension liabilities with respect to British Steel Pension Scheme,

introducing a new surplus pension scheme with ~69% members. The

company also entered into a joint venture (JV) with ThyssenKrupp for

their respective flat steel businesses. The JV is expected to benefit from

cost synergies in the range of ~€400-600 million realised through

integration. Also, at Indian operations, the company announced further

expansion of 5 MT at its Kalinganagar facility entailing a capex of | 23500

crore, taking total capacity at the location to 8 MT. Post expansion, the

capacity of Indian operations will be 18 MT. Furthermore, Tata Steel has

successfully acquired Bhushan Steel under Indian Bankruptcy Code 2016,

which will create downstream synergies in the long term.

Maintain Tata Steel’s India operations EBITDA/tonne estimates…

We maintain our volume and EBITDA/tonne estimates for Tata Steel’s

domestic and European operations. Accordingly, sales volumes and

EBITDA/tonne estimates of Indian operations were at 12.5 MT and

| 13250/tonne for FY19E and 12.8 MT and | 14000/tonne for FY20E. For

European operations, sales volume was at 10 MT with EBITDA/tonne of

US$75/tonne for both years FY19E and FY20E. From Bhushan Steel, we

factor in sales volume of 4 MT and EBITDA/tonne of | 10000/tonne for

both years FY19E and FY20E.

Domestic operation to strengthen over longer term; maintain BUY

We remain positive on Tata Steel on the back of increasing focus on

higher margin domestic operations. Going forward, in our FY19, FY20

assumptions, we model the consolidation of Bhushan steel and thereby

upward revise our sales volume, absolute EBITDA estimates. However,

on account of the same, consolidated net debt has increased from

~| 69215 crore in March 2018 to | 103529 crore in June 2018. We

continue to value Tata Steel on an SoTP basis wherein, on accounting for

increase in leverage, we marginally cut down our target price to | 675

(from | 700 earlier). We continue to maintain our BUY rating on the stock.

Rating matrix

Rating : Buy

Target : | 675

Target Period : 12 months

Potential Upside : 18%

What’s Changed?

Target Changed from |700 to |675

EPS FY19E Changed from |71.3 to |83.3

EPS FY20E Changed from |79.2 to |85.5

Rating Unchanged

Quarterly Performance

Q1FY19 Q1FY18 YoY (%) Q4FY18 QoQ (%)

Revenue 37,833 29,557 28.0 36,132 4.7

EBITDA 6,468 4,974 30.0 6,499 (0.5)

EBITDA (%) 17.1 16.8 27 bps 18.0 -89 bps

Rep. PAT 1,934 921 LP 14,688 (86.8)

Adj. PAT 2,233 1,532 LP 3,312 (32.6)

Key Financials

(| Crore) FY17 FY18 FY19E FY20E

Net Sales 112,299 131,700 157,790 160,131

EBITDA 17,008 21,891 27,702 28,997

Adj Net Profit 4,092 8,164 9,533 9,785

EPS (|) 42.2 71.3 83.3 85.5

Valuation summary

FY17 FY18 FY19E FY20E

PE (x) 13.6 8.0 6.9 6.7

Target PE (x) 16.0 9.5 8.1 7.9

EV/EBITDA(x) 8.0 6.7 6.6 5.9

P/BV (x) 1.5 1.1 0.9 0.8

Adj RoNW (%) 10.8 13.4 13.3 12.1

Adj RoCE (%) 9.4 10.7 10.7 11.2

Stock data

Particular Amount

Market Capitalization (| Crore) 65,609

Total Debt (FY18) (| Crore) 88,674

Cash & Cash Eq. (FY18) (| Crore) 25,837

EV (| Crore) 128,445

52 week H/L (|) 748 / 493

Equity capital | 1145 Crore

Face value | 10

Price performance (%)

Return % 1M 3M 6M 12M

JSW Steel 8.2 5.7 10.1 53.1

Tata Steel 1.8 -6.3 -20.2 5.5

Research Analyst

Dewang Sanghavi

[email protected]

Akshay Kadam

[email protected]

Tata Steel (TATSTE) | 573


Variance analysis

Q1FY19 Q1FY19E Q1FY18 YoY (%) Q4FY18 QoQ (%)

Revenue 37,832.8 33,749.0 29,556.8 28.0 36,132.3 4.7 Topline came in above our estimates

Other Income 347.3 264.5 155.5 123.3 333.5 4.1

Employee Expense 4,933.3 4,533.3 4,303.9 14.6 4,582.7 7.7

Raw Material Expense 13,999.5 13,599.5 11,069.9 26.5 13,677 2.4

Other operating Expenses 12,432.3 8,717.0 9,209.1 35.0 11,373.5 9.3

EBITDA 6,467.7 6,899.2 4,973.9 30.0 6,498.9 -0.5

EBITDA came in marginally below our estimates on account of

unrealised non-cash adverse forex movement at the key South

East Asian (SEA) financing entities

EBITDA Margin (%) 17.1 20.4 16.8 27 bps 18.0 -89 bps

Depreciation 1,805.6 1,550.0 1,501.1 20.3 1,512.2 19.4

Interest 1,670.1 1,510.5 1,343.7 24.3 1,480.9 12.8

Exceptional Item 299 - 610.9 -51.1 (11,376) -102.6

PBT 3,040.4 4,103.2 1,673.7 81.7 15,215.5 -86.8

Tax Outgo 1,103.7 1,354.1 740.5 49.0 576.1 91.6

PAT 1,936.8 2,749.1 933.2 107.5 14,639.4 -86.8

Profit from discontinued operations (3.0) 48.6 (12.1) -75.5 48.6 -106.1

Reported PAT for the Group 1,933.8 2,797.7 921.1 LP 14,688.0 -86.8 PAT came in below our estimates

Adjusted PAT for the Group 2,232.6 2,797.7 1,532.0 LP 3,311.9 -32.6

Key Metrics

TSI Steel Sales (MT) 3.0 3.1 2.8 8.0 3.0 -2.0 TSI sales volume was broadly in line with our estimates

TSE Steel Sales (MT) 2.5 2.4 2.4 2.1 2.6 -3.9 TSE sales volume was broadly in line with our estimates

Group Steel Sales (MT) 6.6 6.2 5.8 13.8 6.7 -1.8 Group sales volume came in higher than our estimates

TSI EBITDA/tonne (|/tonne) 17,077 16,500 10,786 58.3 15,872 7.6 TSI EBITDA/tonne came in higher than our estimates

TSE EBITDA/tonne (US$/tonne) 102 100.0 80.0 26.9 70.0 45.0 TSE EBITDA/tonne came in higher than our estimates

TSI: Tata Steel India; TSE: Tata Steel Europe

Source: Company, ICICI Direct Research

Change in estimates

(| Crore) Old New % Change Old Introduced % Change Comments

Total Operating Income (| crore) 134,790 157,790 17.1 137,131 160,131 16.8

Upward revise estimates for both years on all

parameters

EBITDA (| crore) 22,202 27,702 24.8 23,497 28,997 23.4

EBITDA Margin (%) 16.5 17.6 6.6 17.1 18.1 5.7

Adj PAT (| crore) 8,161 9,533 16.8 9,063 9,785 8.0

Adj EPS (|) 71.3 83.3 16.8 79.2 85.5 8.0

FY20EFY19E


Assumptions

Earlier Comments

FY18 FY19E FY20E FY19E FY20E

TSI + Bhushan Steel Sales Volume (MT) 12.2 16.5 16.8 12.5 12.8

Upward revise volume estimates factoring in volumes

from Bhushan Steel

TSE Steel Sales (MT) 10.0 10.0 10.0 10.0 10.0

Group Steel Sales (MT) 25.5 31.0 31.3 27.0 27.3

TSI EBITDA/tonne (|/tonne) 12,987 13,250 14,000 13,250 14,000 Maintain TSI EBITDA/tonne estimates

TSE EBITDA/tonne (US$/tonne) 58.0 75.0 75.0 75.0 75.0 Maintain TSE EBITDA/tonne estimates

TSI: Tata Steel India; TSE: Tata Steel Europe

Current



Company Analysis

Healthy increase in domestic sales volume augurs well…

Tata Steel’s Indian operations registered sales volume growth of 8% YoY

during Q1FY19E. Domestic steel consumption during the quarter grew

9% YoY. Going forward, we maintain domestic sales volume estimate for

FY19E at 12.5 MT and introduce FY20E at 12.8 MT. We factor in sales

volume from Bhushan Steel at 4 MT for both FY19E and FY20E.

Integrated Jamshedpur operations bode well in long run……

The company’s Jamshedpur plant has access to captive raw materials

(100% integration for iron ore and ~35% integration for coking coal). This

enables TSL to realise superior EBITDA margins compared to its domestic

peers. Going forward, over the next couple of years, we expect Indian

operations to clock an EBITDA/tonne of ~| 13250-14000/tonne, higher

than its domestic peers. We expect Bhushan Steel to garner an

EBITDA/tonne of | 10000/ tonne for both years FY19E and FY20E.

Exhibit 1: Tata Steel + Bhushan Steel volume trend going forward

8.89.5

11.0

12.3

16.5 16.8

0

2

4

6

8

10

12

14

16

18

FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

million t

onne


Exhibit 2: Tata Steel’s domestic EBITDA/tonne to augment further…

11433

7388

10901

12987 1325014000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

|/t

onne


European operations report healthy EBITDA for Q1FY19...

European operations reported a healthy EBITDA/tonne of US$102/tonne

for the quarter (vs. Q1FY18: US$80/tonne and Q4FY18: US$70/tonne).

The improvement in EBITDA/tonne was marked by higher volumes QoQ,

healthy realisations and increased efficiency in Strip Products (UK), partly

offset by higher raw material cost. Going forward, we model an

EBITDA/tonne of US$75/tonne for both FY19E and FY20E.

Exhibit 3: Trend in Europe volume…

13.7

13.0

9.9 10.0 10.0 10.0

5.0

7.0

9.0

11.0

13.0

15.0

FY2015 FY2016 FY2017 FY2018E FY2019E FY2020E

million t

onne


Exhibit 4: … TSE EBITDA/tonne to improve

50

-7

75 7571

58

-20

-10

0

10

20

30

40

50

60

70

80

FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

US

$/tonne


TSL India outshines domestic demand...

12.9 13.8

2.7

9.0

15.0

10.7

3.3

0.6

3.1

4.3

3.0

7.9

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY13 FY14 FY15 FY16 FY17 FY18

%

Tata Steel India YoY Domestic Steel Demand YoY



Exhibit 5: Share of domestic sales volume (Tata Steel + Bhushan Steel)

in overall group sales

26.3

23.9

26.8

27.0

27.3

8.8

9.5

11.0

12.3 16.5

16.8

26.3

3336

46

46

6161

0

5

10

15

20

25

30

FY2015 FY2016 FY2017 FY2018 FY2019E FY2020E

million t

onne

0

10

20

30

40

50

60

70

%

Tata Steel Group Tata Steel India India's Proportion to Total sales


Exhibit 6: Consolidated EBITDA margin trend

9.0

6.5

15.1

16.6 16.517.1

0

4

8

12

16

20

FY2015 FY2016 FY2017 FY2018E FY2019E FY2020E

%

Tata Steel Group


Bhushan Steel acquisition

Tata Steel’s wholly owned subsidiary Bamnipal Steel (BNPL) has

successfully completed the acquisition of a controlling sake of 72.65% in

Bhushan Steel (BSL) in accordance with the approved resolution plan

under the Corporate Insolvency Resolution Process (CIRP) of the

Insolvency and Bankruptcy Code 2016 (IBC). Further, settlement of the

amounts equivalent to | 35200 crore towards financial creditors of BSL is

being undertaken as per the terms of the resolution plan and

corresponding transaction documents. The company will pay | 1200

crore to operational creditors of BSL over 12 months as per their admitted

claims as per the terms of the approved Resolution Plan.

For Q1FY19, Bhushan Steel reported steel sales of 0.85 MT and an

EBITDA of | 823 crore, clocking an EBITDA/tonne of ~| 9800/tonne.

However, at the consolidated level, the EBITDA contribution came in at

~| 66 crore due to fair value accounting (wherein costs were inflated on

account of revaluation of assets and inventories) impact and

consolidation effective from May 18, 2018.

We model sales volume and EBITDA/tonne of 4 MT and | 10000/tonne for

both years FY19E and FY20E.

Bhushan Steel Financials FY15-17

Standalone - | crore FY15 FY16 FY17

Revenue 10,646 11,803 13,706

EBITDA 2,174 2,061 2,922

EBITDA Margin (%) 20.4 17.5 21.3

PAT (1,254) (3,329) (3,502)

Networth 5,587 2,258 (1,244)

Debt 44,958 47,234 46,262

Debt to Equity (x) 8.0 20.9 NA

Consolidated - | crore FY15 FY16 FY17

Revenue from Operations 10,646 11,803 13,706

EBITDA 2,172 2,061 2,921

EBITDA Margin (%) 20.4 17.5 21.3

PAT (1,257) (3,441) (3,615)

Networth 5,559 2,890 (1,484)

Debt 44,959 47,235 46,263

Debt to Equity (x) 8.1 16.3 NA

Source: Company, ICICIdirect.com Research


Debt levels to increase from current levels on account of capex…

Net debt during the quarter was at | 103,529 crore increased from

| 69,215 crore in Q4FY18.

Gross debt increased to | 1,16,615 crore (from | 92,147 crore in Q4FY18).

This was primarily on account of Bhushan Steel acquisition, which

increased the debt by | 16,413 crore, new loan of | 3,011 crore,

reclassification of operating lease to financial lease at BSL of | 984 crore

and forex impact & working capital increase of | 4,060 crore.

We expect net debt to increase, going forward, on account of capex

undertaken in FY19E and FY20E.

The management indicated that it is targeting a long term net debt to

EBITDA ratio of 3x, which would be post implementation of Kalinganagar

Phase-II.

Exhibit 7: Net debt to increase in FY19E, moderate in FY20E

83014

92147

122874

110174

72367

69215

117530

104803

0

20000

40000

60000

80000

100000

FY17 FY18 FY19E FY20E

| c

rore

Gross Debt Net Debt

Source: Company, ICICI Direct Research, Net debt is Gross Debt minus Cash


Conference call highlights…

Global scenario

Global economic growth continues to remain strong. However,

increasing tariff actions, elevated oil prices and a weakening currency

are matters of concern

Ex-China, world steel production increased by ~13 million tonne (MT)

in H1CY18 vs. demand growth estimate of ~29 MT for full year CY18

Steel demand in China continues to remain robust growing ~8%

whereas production grew ~6% in H1CY18. Production and demand

are both expected to moderate in H2CY18

Chinese steel exports increased during the quarter with higher steel

production and depreciating Yuan. However, inventories in China

witnessed decline to January 2018 levels while exports have

moderated in July 2018

Steel prices softened globally due to ongoing trade friction and recent

softness in raw material prices. However, steel spreads remained

resilient reflecting strong underlying demand

Indian steel scenario

Economic activities accelerated in Q1FY19. Steel demand grew ~9.2%

YoY driven by strong demand in commercial vehicle, infrastructure

and capital goods segment

Net imports increased with trade diversions by steel surplus countries

and a decline in exports

Domestic steel prices remained resilient supported by robust domestic

demand

Europe & South East Asia Scenario

During the quarter, the European economy grew 2.2% YoY. EU

apparent steel demand is estimated to have grown 3.8% YoY.

However, the market share of imports appears to have increased to

24% from 16% in the previous quarter. The UK steel market continues

to suffer from Brexit uncertainty

South East Asia Rebar prices were stable but spreads improved with a

decline in scrap prices. Long steel demand remained weak in

Singapore and Thailand. The construction sector remained sluggish

Operational performance

During the quarter, domestic steel sales grew 14% YoY against steel

consumption growth of 9% YoY. Of the 2.97 MT of domestic steel

deliveries, export deliveries were at 0.16 MT (5.4%)

Branded products contributed ~47% to total sales. The company

continues to boast an enriched product mixed with ~73% deliveries

being value added products

Deliveries at European operations were 2% higher YoY but lower 4%

QoQ owing to the a seasonally strong Q4FY18. The company launched

three new products at TSE including a new automotive offering and a

defect free cold forming steel for applications like cranes and other

heavy vehicles

At the South East Asia operations, production was lower QoQ on

account of the planned shutdown at Tata Steel Thailand. Deliveries

were marginally lower QoQ with continued weakness in long steel

demand, partly offset by improved deliveries at Nat Steel Singapore

on the back of higher exports


Business Outlook

Steel Demand

In India, steel consuming sectors growth is expected to remain strong.

Demand from the automotive sector is expected to remain healthy.

India may remain a net importer given a strong domestic demand.

Rising imports are a concern, which may require policy intervention

Steel demand in Europe is expected to grow 2.1% in 2018 driven by

growth in the construction and mechanical sectors

The SEA demand is expected to remain sluggish in 2018

Steel prices

Domestic steel prices are expected to be range bound given

seasonality. Post monsoons, prices are expected to pick up on the

back of strong underlying demand

Prices in Europe are expected to remain stable through the summer

with stronger than anticipated demand in a seasonally weaker period

Raw material prices

Iron ore prices are expected to be range bound. Premium for high

grade iron ore and pellets are expected to continue as Chinese

producers display strong preference for better grades

Coking coal prices continue to be firm. The coke premium has

increased. Restriction on coal imports at Chinese ports is likely to

impact the trade balance

Other highlights

Tata Steel consolidated Bhushan Steel’s performance since May 18,

2018. EBITDA contribution came in at ~| 66 crore. Costs were inflated

on account of revaluation of assets and inventories

Bhushan Steel for the quarter reported steel sales of 0.85 MT and

EBITDA of ~| 823 crore, thus clocking EBITDA/tonne of ~| 9800/tonne

during the quarter. The management indicated the EBITDA/tonne

would be sustainable if steel prices continue to remain range bound

The management further indicated the ramp up of Bhushan Steel from

3.5 MT to ~5-5.5 MT will take two years with minimum incremental

capex

Smaller subsidiaries (ex-Indian, European, SEA operations) reported a

negative EBITDA of | 400 crore primarily on the back of ~| 1100 crore

non cash loss on account of foreign exchange fluctuations

The current steel prices are ~|500 lower as compared to Q1FY19

average. For Q2FY19 coking coal cost is likely to remain flat QoQ


Outlook and valuation

We remain positive on Tata Steel on the back of increasing focus on

higher margin domestic operations. Going forward, in our FY19 and FY20

assumptions, we model the consolidation of Bhushan Steel. Hence, we

upward revise our sales volume and absolute EBITDA estimates.

However, on account of the same, Tata Steel’s consolidated net debt has

increased from ~| 69215 crore in March 2018 to | 103529 crore in June

2018. We continue to value Tata Steel on an SoTP basis. On account of

increase in leverage, we marginally cut our target price to | 675 (from |

700 earlier). We continue to maintain our BUY rating on the stock.

Exhibit 8: Valuation Matrix

Total Op. Income Growth EPS Growth PE EV/EBIDTA P/ BV RoNW RoCE

(| Crore) % YoY (|) % YoY (x) (x) (x) (%) (%)

FY16 115,952 (16.2) (23.1) NM NA 17.6 1.8 (7.3) 2.1

FY17 111,562 (3.8) 42.2 LP 13.7 8.0 1.5 10.8 9.4

FY18 130,425 16.9 71.3 99.5 8.1 6.8 1.1 13.4 10.7

FY19E 156,750 2.5 91.9 28.9 6.3 6.6 0.9 14.2 10.8

FY20E 159,060 1.7 99.6 8.4 5.8 5.9 0.8 13.5 10.8



Recommended History vs. Consensus

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

20

120

220

320

420

520

620

720

820

920

Aug-18

Jun-18

May-18

Mar-18

Feb-18

Dec-17

Nov-17

Sep-1

7

Aug-17

Jun-17

May-17

Mar-17

Jan-17

Dec-16

Oct-16

Sep-1

6

Jul-16

Jun-16

Apr-16

Mar-16

Jan-16

Dec-15

Oct-15

Aug-15

(%

)(|)

Price Idirect target Consensus Target Mean % Consensus with Buy

Source: Bloomberg, Company, ICICI Direct Research

Key events

Date Event

Aug-17

Tata Steel signs agreement on segregating the company’s UK business from its pension scheme that will potentially free it up to pursue strategic options for the

unit. As part of the arrangement, Tata Steel UK will make a payment of £550 million to the British Steel Pension Scheme (BSPS) while 33% of Tata Steel UK’s equity

will be issued to the scheme’s trustee

Sep-17

Tata Steel UK receives confirmation from The Pensions Regulator regarding approval of Regulated Apportionment Arrangement (RAA) with respect to the British

Steel Pension Scheme (BSPS). As part of RAA, Tata Steel UK makes payment of £ 550 million and issued shares equivalent to a 33% stake in the company to the

BSPS Trustee under the terms of a shareholder's agreement

Sep-17

Tata Steel, Thyssenkrupp AG sign an MoU to combine their respective flat steel businesses in Europe and for the steel mill services. The proposed JV would be

named Thyssenkrupp Tata Steel which will have annual shipments of ~21 million tonne (MT) and is likely to have a proforma turnover of ~ €15 billion per annum

(|115000 crore). The JV would be formed through a non cash transaction framework, based on fair valuation where both shareholders would contribute debt and

liabilities to achieve equal shareholding in the venture. The company intends to sign definitive agreement by March 2018 and is looking to close the deal by

December 2018 or March 2019

Oct-17

Tata Steel acquires Rio Tinto's smelter technology and intellectual property rights required to operate Hisarna process. The technology removes a number of pre-

processing steps, resulting in significant efficiency gains and 20% reduction in energy use and carbon dioxide emissions as well as reducing steelmaking costs

through lower priced raw materials (up to half of which could be recycled scrap steel)

May-18

Tata Steel Europe conducts a detailed portfolio review of all its businesses to assess the strategic fit and its future potential. Based on the above review, Tata Steel

Europe has begun a process of seeking buyers for business units which supply products to niche markets, allowing the company to continue to strengthen its focus

on strategic strip products and markets

May-18

Bamnipal Steel (wholly owned subsidiary of Tata Steel) sucessfully completes acquistion of controlling stake of 72.65% in Bhushan Steel (BSL) in accordance with

the Resolution Plan under the Corporate Insolvency Resolution Process of the Insolvency and Bankruptcy Code 2016. Further settlement of the amounts equivalent to

|35200 crore towards financial creditors of BSL is being undertaken as per the terms of resolution plan and corresponding transaction documents. The company will

pay |1200 crore to the operational creditors of BSL over a period of 12 months as per their claims admitted and as per the terms of approved Resolution Plan


Top 10 Shareholders Shareholding Pattern

Rank Name Latest Filing Date % O/S Position (m) Change (m)

1 Tata Group of Companies 30-Jun-18 31.8 358.1 0.0

2 Life Insurance Corporation of India 30-Jun-18 9.6 108.4 0.0

3 HDFC Asset Management Co., Ltd. 30-Jun-18 5.1 57.3 15.3

4 Reliance Nippon Life Asset Management Limited 31-Mar-18 3.2 36.1 10.5

5 Aditya Birla Sun Life AMC Limited 30-Jun-18 1.8 19.8 3.6

6 ICICI Prudential Asset Management Co. Ltd. 30-Jun-18 1.5 16.9 -11.9

7 Dimensional Fund Advisors, L.P. 30-Jun-18 1.1 12.6 0.0

8 DSP BlackRock Investment Managers Pvt. Ltd. 30-Jun-18 1.1 11.9 -1.1

9 SBI Funds Management Pvt. Ltd. 30-Jun-18 1.0 11.7 0.8

10 BlackRock Institutional Trust Company, N.A. 31-Jul-18 0.9 10.2 0.1

Source: Reuters, ICICI Direct Research

(in %) Jun-17 Sep-17 Dec-17 Mar-18 Jun-18

Promoter 31.4 31.4 31.4 33.2 33.2

FII 13.7 15.7 17.1 18.5 15.8

DII 30.3 29.7 28.5 26.8 29.3

Others 24.7 23.3 23.1 21.5 21.7

Recent Activity

Investor name Value (m) Shares (m) Investor name Value (m) Shares (m)

HDFC Asset Management Co., Ltd. 126.9 15.3 ICICI Prudential Asset Management Co. Ltd. -98.4 -11.9

Reliance Nippon Life Asset Management Limited 92.4 10.5 L&T Investment Management Limited -16.6 -2.0

Capital International Investors 57.9 7.0 DSP BlackRock Investment Managers Pvt. Ltd. -9.5 -1.1

Aditya Birla Sun Life AMC Limited 29.5 3.6 Acadian Asset Management LLC -5.6 -0.7

Kotak Mahindra Asset Management Company Ltd. 22.4 2.7 T. Rowe Price Associates, Inc. -3.7 -0.4

Buys Sells

Source: Reuters, ICICI Direct Research


Financial summary (Consolidated)

Profit and loss statement (| crore)

(Year-end March) FY17 FY18 FY19E FY20E

Net Sales 111562.1 130425.5 156749.7 159060.5

Other Operating Income 737.4 1274.9 1040.5 1070.6

Total Operating Income 112299.4 131700.3 157790.1 160131.1

Growth (%) -3.8 16.9 2.5 1.7

Raw Material Expenses 39304.9 52164.6 51643.6 52044.4

Employee Expenses 17252.2 17606.2 19162.0 19397.1

Purchase of Power 0.0 0.0 0.0 0.0

Other expenses 38734.5 40039.0 41782.4 42192.2

Total Operating Expenditure 95291.6 109809.8 130088.1 131133.7

EBITDA 17007.8 21890.5 27702.1 28997.5

Growth (%) 124.2 28.7 1.4 5.8

Depreciation 5672.9 5961.7 6964.0 7731.0

Interest 5072.2 5501.8 6609.7 7254.7

Other Income 527.5 1083.6 661.3 811.4

PBT 6790.2 11510.6 14789.7 14823.1

Exceptional Item -4316.6 9599.1 0.0 0.0

Total Tax 2778.0 3405.4 5308.8 5085.7

PAT -304.4 17704.4 9480.9 9737.4

Growth (%) -90.4 -5916.5 -46.4 2.7

Minorities, Associates etc -64.2 58.5 52.6 47.3

Rep PAT after Assoc., MI -368.6 17762.8 9533.5 9784.8

Adj PAT after Assoc., MI 4092.1 8163.7 9533.5 9784.8

Growth (%) -282.4 99.5 16.8 2.6

EPS (|) 42.2 71.3 83.3 85.5


Cash flow statement (| crore)


Profit after Tax -368.6 17762.8 9533.5 9784.8

Add: Depreciation 5672.9 5961.7 6964.0 7731.0

(Inc)/dec in Current Assets 6666.0 -23256.4 2157.0 6962.7

Inc/(dec) in CL and Prov. -1134.7 -801.9 -12762.1 2939.8

Others 7125.2 9470.2 3000.0 3000.0

CF from operating activities 17960.8 9136.3 8892.4 30418.3

(Inc)/dec in Investments -5736.1 -5362.8 -3000.0 -3650.0

(Inc)/dec in Fixed Assets -31020.6 -10285.6 -44200.0 -13000.0

Others -52.5 -665.2 52.6 47.3

CF from investing activities -36809.2 -16313.5 -47147.4 -16602.7

Issue/(Buy back) of Equity -20.0 174.7 0.0 0.0

Inc/(dec) in loan funds -3190.0 5660.1 34200.0 -12700.0

Dividend paid & dividend tax -908.1 -1339.6 -1339.6 -1339.6

Inc/(dec) in Share Cap 8342.2 6453.4 2800.9 251.3

Others 9360.6 -754.7 0.0 0.0

CF from financing activities 13584.7 10193.9 35661.3 -13788.3

Net Cash flow -5263.7 3016.8 -2593.7 27.3

Opening Cash 10184.8 4921.1 7937.9 5344.2

Closing Cash 4921.1 7937.9 5344.2 5371.5


Balance sheet (| crore)


Liabilities

Equity Share Capital 970.2 1,145.0 1,145.0 1,145.0

Hybrid Perpetual securities 2,275.0 2,275.0 2,275.0 2,275.0

Reserve and Surplus 34574.1 57450.7 68445.5 77141.9

Total Shareholders funds 37819.3 60870.6 71865.4 80561.9

Total Debt 83014.0 88674.1 122874.1 110174.1

Deferred Tax Liability 10030.1 10569.9 10569.9 10569.9

Minority Interest & Others 1601.7 9866.9 12919.5 15966.9

Total Liabilities 132465.1 169981.5 218228.9 217272.7

Assets

Gross Block 183767.2 193677.1 234877.1 240877.1

Less: Impairment 0.0 0.0 0.0 0.0

Less: Acc Depreciation 95255.4 101217.0 108181.0 115912.1

Net Block 88511.8 92460.1 126696.0 124965.0

CWIP 15784.1 16159.8 19159.8 26159.8

Investments 12536.7 17899.5 20899.5 24549.5

Goodwill on Consolidation 3494.7 4099.5 4099.5 4099.5

Inventory 24803.8 28331.0 28297.9 24952.8

Debtors 11586.8 12415.5 13191.7 12674.1

Loans and Advances 7587.4 26142.3 23142.3 19942.3

Other Current Assets 2931.1 3276.6 3376.6 3476.6

Cash 4921.1 7937.9 5344.2 5371.5

Total Current Assets 51830.2 78103.4 73352.7 66417.3

Current Liabilities 18574.5 38506.8 24744.7 26684.5

Provisions 22003.9 1269.6 2269.6 3269.6

Current Liabilities & Prov 40578.4 39776.4 27014.4 29954.2

Net Current Assets 11251.8 38326.9 46338.4 36463.2

others 885.9 1035.8 1035.8 1035.8

Application of Funds 132465.1 169981.5 218228.9 217272.7


Key ratios


Per share data (|)

Adj EPS 42.2 71.3 83.3 85.5

Cash EPS 100.6 123.4 144.1 153.0

BV 389.8 531.6 627.7 703.6

Adj BV (adj for Goodwill) 353.8 495.8 591.9 667.8

DPS 8.0 10.0 10.0 10.0

Cash Per Share 50.7 69.3 46.7 46.9

Operating Ratios (%)

EBITDA Margin 15.1 16.6 17.6 18.1

PBT / Total Operating income 6.0 8.7 9.4 9.3

Adj PAT Margin 3.6 6.2 6.0 6.1

Inventory days 210 186 200 175

Debtor days 38 34 36 34

Creditor days 199 187 175 200

Return Ratios (%)

Adj RoE 10.8 13.4 13.3 12.1

Adj RoCE 9.4 10.7 10.7 11.2

RoIC 9.8 11.2 10.9 11.5

Valuation Ratios (x)

P/E 13.6 8.0 6.9 6.7

EV / EBITDA 8.0 6.7 6.6 5.9

EV / Net Sales 1.2 1.1 1.2 1.1

Market Cap / Sales 0.5 0.4 0.4 0.4

Price to Book Value 1.5 1.1 0.9 0.8

Price to Adj Book Value 1.6 1.2 1.0 0.9

Solvency Ratios

Debt/EBITDA 4.9 4.1 4.4 3.8

Debt / Equity 2.2 1.5 1.7 1.4

Current Ratio 1.3 2.0 2.7 2.2

Quick Ratio 0.7 1.3 1.7 1.4



ICICI Direct Research coverage universe (Metals & Mining)

CMP M Cap

(|) TP (|) Rating (| Cr) FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E FY18 FY19E FY20E

Coal India 280 300 Hold 174055 21.7 22.6 14.9 2.8 13.0 19.7 6.4 6.9 10.5 36.4 45.0 33.5 34.7 42.1 37.8

Hindalco 220 245 Buy 48994 19.9 23.4 26.6 11.1 9.4 8.3 6.1 6.1 5.4 9.4 9.9 10.3 8.1 9.1 9.3

Hindustan Zinc 287 285 Hold 121110 22.0 19.4 24.2 12.1 13.7 11.0 7.3 7.9 5.9 34.0 26.4 28.7 25.8 19.8 21.2

JSW Steel 342 375 Buy 82692 25.3 29.0 31.8 12.3 10.8 9.8 7.6 6.6 6.4 17.9 19.5 17.5 21.8 23.2 20.7

Vedanta 216 235 Hold 64133 20.0 25.8 31.9 10.9 8.5 6.8 4.1 4.2 3.6 17.6 14.3 16.9 11.7 13.7 15.3

Tata Steel 573 675 Buy 52756 71.3 83.3 85.5 8.1 6.9 6.8 6.8 6.7 5.9 10.7 10.7 11.2 13.4 13.3 12.1

ROE(%)EPS (|) P/E (x)

Company

ROCE(%)EV/EBITDA (x)



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Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

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[email protected]


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