Tata Steel Ltd

Ratings
Facilities

Amount (Rs. crore)

Ratings1

Remarks

Non convertible debentures

6,151

CARE AA+ [Double A Plus]

Reaffirmed

Perpetual Bond Issue

2,275

CARE AA [Double A]

Reaffirmed

Long term bank facilities

22,800

CARE AA+ [Double A Plus]

Assigned

Rating Rationale
The ratings reaffirmation takes into account the financial flexibility enjoyed by Tata Steel Limited (TSL) by virtue of being part
of the Tata Group, its strong Indian operations aided by backward integration in the form of captive iron ore and coal mines
making it one of the lowest cost producers of crude steel, its strong liquidity position and geographically diversified presence.
The ratings also positively factor in the improvement in operating performance of Tata Steel Europe (TSE) on the back of various
cost efficiency and product differentiation measures undertaken and companys efforts to monetize its non-core assets to
improve its consolidated capital structure.
The above rating strengths are, however, tempered by relatively slow pick of steel demand in European market and lack of
resource integration for its European operations resulting in TSE being exposed to volatility in raw material prices. The ratings
also factor in the construction of 6 mtpa Greenfield project at Kalinganagar,Odisha, which is likely to keep the capital structure
leveraged and debt coverage indcators moderate in the medium term. The first phase of 3 mtpa is likely to be commissioned
by the end of FY15.
Sustained improvement in the operational performance of TSE, along with the timely completion of its ongoing projects within
the envisaged cost are the key rating sensitivities.
The rating assigned to the long term bank facilities pertains to the term loans that were originally envisaged to be sanctioned
to Tata Steel Odisha Ltd. (TSOL, wholly owned subsidiary of TSL); the facilities are now availed by TSL.
Background
Tata Steel Limited (TSL) was established as Indias first integrated steel company in 1907 by Mr. Jamsetji N. Tata, the founder
of the Tata Group. The company has a presence across the entire value chain of steel manufacturing, including producing and
distributing finished products as well as mining and processing of iron ore and coal for its steel production. TSL has grown
significantly in the last 5-6 years, with its steel production capacity increasing from approximately 5.0 mtpa in FY06 (refers to
period April 1 to March 31) to 29.30 mtpa in FY14 primarily due to companys acquisition in April 2007 of Corus Group plc ,
that was renamed Tata Steel Europe (TSE) in September 2010. As a result of this acquisition, large part of the companys steel
production capacity is currently located in the United Kingdom and the Netherlands where the company has four facilities with
a total steel production capacity of 17.40 mtpa. The company recently augmented its domestic crude steel capacity from 6.8
MTPA to 9.7 MTPA.
The company is one of the most geographically diversified steel producers, with operations in 26 countries and commercial
presence in more than 50 countries. The product mix of the company includes flat products such as HR Coils, CR Coils, Galvanized
Steel; Long Products such as Wire Rods, Rebars; Ferro Alloys, Tubes, Bearings, Wires, etc.
Other than the above manufacturing facilities, the company also owns coal, iron ore and manganese & chrome mines at
various locations. The company is 100% backward integrated w.r.t. iron-ore requirementand 50% backward integration for coal
requirement for the domestic operations.
TSL purchases all of its iron ore and coal requirements for its European operations from market.

Complete definitions of the ratings assigned are available at www.careratings.com and other CARE publications

Credit Analysis & Research Limited

Credit Risk Assessment

Strategic importance to the Tata group
TSL is one of the important companies of the Tata Group. The Group comprises over 100 operating companies, in various
key business sectors such as steel, auto, communications & information technology, engineering, materials, services, energy,
consumer products and chemicals. The group has operations in more than 80 countries across six continents and exports
products and services to 85 countries.
Tata Sons Limited held 29.75% stake in TSL as at March 31, 2014. By virtue of being part of Tata Group, the company enjoys
immense financial flexibility.
Healthy domestic operational performance
The cash flows from the domestic operations of TSL i.e. Tata Steel India (TSI) have been strong over the past few years on
account of significant raw material integration, which makes it one of the lowest cost producers of hot metal domestically
(100% iron ore integration and 50% integration for coking coal). The company also increased its capacity by 2.9 mtpa, through
a brownfield expansion project, that was fully ramped up in FY14. This led to a 9% increase in sales of TSI due to a 14% increase
in deliveries from 7.48 MT in FY13 to 8.52 MT in FY14. Domestic steel crude production increased by 13% to touch 9.16 MT.
Iron ore mines production was also ramped up to cater to the increased production requirement. Domestic iron ore production
increased from 15 MTPA in FY13 to 17.4 MTPA in FY14. The trend in production and sales of TSI over the past years is given
below:
Particulars

FY11

FY12

FY13

FY14

Q1FY15

Production - Hot Metal (mn ton)

7.50

7.75

8.86

9.90

2.53

Production Crude Steel (mn ton)

6.86

7.13

8.13

9.16

2.33

Production Saleable Steel (mn ton)

6.69

6.97

7.94

8.93

2.25

Sales(mn ton)

6.42

6.63

7.48

8.52

2.10

Blended net realization/ ton(Rs.)**

47,020

49,138

49,202

47,277

49,848

PBILDT/ton (Rs.)

19,039

18,173

15,796

15,786

15,500

**calculated on net sales, including other revenue

Increase in sales volume was partially offset by decline in average realization in FY14. Realization of both flat and long products
reduced due to adverse market conditions. Sales during Q1FY15 increased by 11% y-o-y due to increase in volume as well as
improvement in average realization.
The cost of raw material per ton is lower than industry average since the company benefits from the availability of captive
iron ore and coal mines. However, domestic raw material availability is sensitive to the outcome and implications of the ongoing mining ban imposed by the state governments. In relation to the order issued in May 2014 pertaining to Odisha iron
ore mining ban, the Government issued express order to TSL allowing it to reopen and operate its key mines. The renewal of
license process is underway. The express orders for Khondbond mine in Odisha is still awaited, however, this mine catered to a
relatively smaller share of the total requirement as compared to the Joda mine.
Performance of Tata Steel Europe (TSE)
Turnover of Tata Steel Europe (TSE) was 3% lower in FY14 than previous year in GBP terms reflecting 7% decrease in realization
due to weak market conditions. However, TSE turnover was higher by 9% in rupee terms due to exchange benefit on translation.
TSE deliveries increased by 6% during FY14 due to stabilization of the blast furnace # 4 at Port Talbot, which was re-started in
February 2013.
Particulars
Liquid steel production (mn tonne)

FY13
13.37

FY14
15.55

Q1FY14

Q1FY15

3.70

3.70

Sales(mn tonne)

13.07

13.86

3.14

3.20

Blended Realization/tonne(Rs.)

59,688

61,087

58,701

64,816

PBILDT/ton (Rs.)

585

2,170

2,475

3,109

Credit Analysis & Research Limited

FY14 profitability improved with better operational performance as well as cost savings to the tune of GBP 200 million.
Q1FY15 profitability improved due to higher realization and cost saving benefits accruing to the company. The company also
launched several new products that led to an increase in the share of value added products in the entire basket.
The improvement in margins is partially constrained by lack of backward integration, however, the company is exploring several
options to achieve raw material integration for its European operations. The projects in advanced stage of development include
Direct Shipping Ore (DSO) project in Canada and Benga Coal Project, Mozambique.
Refinancing of imminent debt repayments and monetization of non-core assets; comfortable liquidity position to support
the repayments and on-going capex
The company continues to undertake activities for refinancing of its debt and monetizing its non-core assets. During Q1FY15,
the company sold its entire stake in Dhamra Port for for a profit of Rs.788 crore. TSL also sold its land at Borivali, for Rs.1,155
crore.
Further, the company has investments in other listed entities of that Tata Group that can be monetized to raise funds and hence
provides a high degree of financial flexibility to the company.
The Company has executed agreements to refinance and term out its International debt portfolio of US$ 5.4 billion. The new
loans entail more favourable terms relative to the earlier debt, with a longer maturity profile.
The company has been maintaining strong liquidity. On consolidated basis, cash and equivalent stood at Rs.11,119 crore
{including current investment in mutual funds Rs.2,668 crore and cash and bank (excluding earmarked balances with banks) of
Rs.8,451 crore} as at March 31, 2014.
Large capital expenditure projects being executed by TSL; capital structure to remain leveraged in the medium term
Although the Jamshedpur expansion project has commissioned, the company is also undertaking a greenfield project at Odisha
to produce flat steel products with a capacity of 6 mtpa in two phases of 3 mtpa each. The proposed saleable products from
the project would consist primarily of flat steel products including HR Coils, CR Coils & value added steel viz. Automotive steel,
API grade steel etc. All the major approvals required for the steel plant, including clearance from MoEF, State Pollution Control
Board, power and water supply etc have been obtained.
The requirement of iron ore (estimated ~9-10 MTPA) would be sourced from the existing mines. Approvals for ramp-up of
the mines have already been obtained and physical work for increase in extraction is in progress. Thermal coal requirement is
envisaged to be met through local market sources. TSL proposes to meet the entire requirement of coking coal for the plant
through imports from Australia, China, South Africa etc. The first phase of the project (3 million tonnes) is expected to be
commissioned by end of FY 15. Total debt tied up for the project is Rs.22,800 crore, of which Rs.12,619 crore would be utilized
for funding Phase 1. The project is progressing as per schedule. Cost incurred till June 30, 2014 was Rs.17,530 crore, which is
largely funded through internal accruals.
Prospects and outlook
As per the World Steel Association, the global steel consumption is likely to grow by 3.1% in CY 2014 to 1,527 million tonnes and
by 3.3% to 1,576 million tonnes in 2015 as opposed 3.6% growth in 2013.
In India, steel demand is expected to grow by 3.3% to 76.2 million tonnes in 2014 and by 4.5% to 79.6 million tonnes in 2015,
following a marginal 1.8% growth in 2013.
Similarly, the steel consumption in Europe is expected to grow by 3.1% in 2014 to 143.3 million tonnes and 3% to 147.6 million
tonnes in 2015 as compared to a de-growth of -0.2% in 2013.
Both iron ore and coking coal prices have been very volatile in the last year. Coking coal prices have declined throughout the
last year with steady supply growth, especially in Australia. Both iron ore and coking coal prices have since rebounded from the
bottom levels but given the demand-supply fundamentals, they are not expected to increase significantly from current levels.
3

Credit Analysis & Research Limited

Despite a decline in global raw material prices, domestic profitability margins are expected to remain range-bound. This
is because domestic raw material, especially, iron ore prices, have not declined in line with the global prices due to issues
pertaining to mining ban. However, TSL will continue to post robust margins for Indian operations due to its significant level of
backward integration.
Consoldiated Financial Performance
(Rs. Cr)
2012
(12m, A)

2013
(12m, A)

2014
(12m, A)

133,724

135,116

148,977

PBILDT

13,305

12,837

16,955

Interest

4,250

3,968

4,337

Depreciation

4,517

5,575

5,841

8,855*

(4,040) #

6,725

PAT (after deferred tax)

5,217

(7,272)

3,665

Gross Cash Accruals

9,962

8,226

9,315

971

971

971

Networth

44,568

37,425

42,500

Total debt

60,144

66,674

82,126

Cash and liquid investments

12,055

10,429

11,119

Growth in Total op income (%)

12.37

1.04

10.26

Growth in PAT (after D.Tax) (%)

41.50

-239.40

150.40

9.95

9.5

11.38

3.9

-5.38

2.46

1.24

1.55

1.54

For the period ended / as at March 31,

Working Results
Total Operating income

PBT

Financial Position
Equity Capital/Partners Capital

Key Ratios
Growth

Profitability
PBILDT/Total Op. income (%)
PAT (after deferred tax)/ Total op income (%)
Solvency
Long Term Debt Equity ratio (times)
Overall gearing ratio(times)

1.4

1.84

1.93

Interest coverage(times)

3.13

3.24

3.91

Term debt/Gross cash accruals(years)

5.55

7.28

7.62

1.2

1.04

0.9

0.66

0.58

0.48

Average collection period (days)

41

40

38

Average creditors (days)

69

62

61

Average inventory (days)

75

74

70

Operating cycle (days)

47

51

47

Liquidity
Current ratio(times)
Quick ratio(times)
Turnover

Note:
*Including exceptional items of profit on sale of investment Rs.3,362 crore # including provision of impairment of non-core assets Rs.8,356
crore

Analyst Contact
Name: Dhaval Patel
Tel: 022- 6754 3438
Email: dhaval.patel@careratings.com
4

Credit Analysis & Research Limited

(This follows our brief rational for entity published on 20 October 2014)
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financial strength of the firm at present. The rating may undergo change in case of withdrawal of capital or the unsecured loans brought in by
the partners/proprietor in addition to the financial performance and other relevant factors.

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