TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

Strategic Analysis and Recommendation

for

Under the aegis of

Indian Institute of Management Bangalore

PGSEM 2012

Submitted to Prof. Deepak.K.Sinha

Submitted by

SANDIP JALAN (1212047) SANTHOSH EDUKULLA (1212048) SHARMASH DUDEKULA (1212051) SUPRIYA THENGDI (1212062)

1|Page

TATA Steel - Strategic Analysis and Recommendations Contents

August 31, 2012

Introduction .................................................................................................................................................. 3 Key problems and strategic issues for Tata Steel ......................................................................................... 3 Fall in Demand ...................................................................................................................................... 3 Limited supply ....................................................................................................................................... 4 Increasing costs of inputs...................................................................................................................... 4 Industry Attractiveness for Tata Steel .......................................................................................................... 4 Entry barriers: High attractiveness ....................................................................................................... 4 Bargaining power of suppliers: High attractiveness ............................................................................. 5 Threat of substitutes: Low attractiveness............................................................................................. 6 Bargaining power of Consumers: Mixed attractiveness ....................................................................... 6 Rivalry among competitors: High attractiveness .................................................................................. 6 Competition Analysis ............................................................................................................................ 7 Key Recommendations ................................................................................................................................. 7 We recommend: Cost optimization ...................................................................................................... 7 We recommend: Production changes, innovation and growth............................................................ 8 Financials..................................................................................................................................................... 11 ROE: Decreasing Trend........................................................................................................................ 11 Financial Projections ........................................................................................................................... 11 Market Share & Competitors .............................................................................................................. 12 Appendix 1: Total Revenue and Profit growth for Tata Steel ..................................................................... 13 Appendix 2: Porters 5 forces model for Tata Steel .................................................................................... 13 Appendix 3: Ke ratio calculation .................................................................................................................. 14 Appendix 4: Consolidated Financial Ratios ................................................................................................. 14

2|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

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 geographicallydiversified steel producers, with operations in 26 countries and a commercial presence in over 50 countries. The Tata Steel Group, with a turnover of US$ 22.8 billion in FY '10, has over 80,000 employees across five continents and is a Fortune 500 company. Tata Steels vision is to be the worlds 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 Steels 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). For our analysis we consider Tata Steel Limited (India). All financials are reported for Tata Steel Limited independent of the financials of the Tata Steel group and we refer to the same for our analysis. Also the recommendations are to be applied to this subsidiary.

Key problems and strategic issues for Tata Steel

Steel is a highly commoditized industry with challenges unique to its demand and supply structure. Steel industry depends upon supplies that are natural and limited. The demand is cyclical and depends heavily on the economic situation of the consumers. Most applications of steel can be deferred in time for the short run. Due to fixed availability of supply and varying nature of demand the problems faced by it continue to change over the years, however we have highlighted the current list of problems. The current challenges faced by Tata steel in brief are: Fall in Demand Steel is used in various industries like construction, infrastructure, automotive, aviation, household articles, etc. Demand for Steel has fallen in recent years due to the availability of substitutes like plastic and aluminum. Pipes, furniture parts, automotive parts, etc fall into this category. Financial crisis in Eurozone, China has impacted world growth hence the demand for steel has fallen. World GDP growth is also moderate. 3|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

Limited supply Major raw materials for Steel are iron ore and coal. Since quality of these heavily affects the quality and strength of steel, sources cannot be substitutes easily. Also they are natural hence limited in supply. There is fierce competition in the industry to acquire exclusive rights to the best quality of coal and iron ore. The coking coal supplies in India are not of high quality hence Tata steel sources most of its coal from Australia. Rising costs of freight also is affecting Tata Steel. Increasing costs of inputs Freight and handling charges increased for Tata steel in 2011 by 11% from 1541 Crore rupees. Power charges went up by 28%, royalty for coal and iron ore in India increased by 48%. Overall there was 16.7% increase for FY 2011-12 (Total increase was 1069 crs Rs. for a PAT of 6696 Crs. Rs.) Due to these factors the Return on Equity for Tata Steel for 2011-2012 was 13% against the market returns of 21.82%. See Appendix 1 for the growth trend, Appendix 2 for cost of capital calculations.

Industry Attractiveness for Tata Steel

Entry barriers: High attractiveness Capital Requirement: Steel industry is a capital intensive business. Tata Steel has a lineup of Greenfield projects which it plans to establish not only in domestic markets (Jharkhand, Orissa & Chhattisgarh) but also internationally (Bangladesh, Iran & Vietnam). Besides, it has already completed its expansion capacity of its existing plant from 5 mtpa to 6.8 mtpa at Jamshedpur with an investment of Rs. 5,000 crore, while it is in the process of expanding the capacity from 6.8 mtpa to 10 mtpa with an estimated investment of Rs 15,000 crore. It would prove to be very difficult for any new entrant to come up with such huge investment outlays. Economies of scale: As far as the sector forces go, scale of operation does matter. Tata Steel being an integrated steel company has its own mines for key raw materials such as iron ore and coal and this protects them for the potential threat for new entrants to a significant extent. Tata Steel owns raw material assets such as coal and limestone mines through joint ventures or completely, with the assets spread across countries such as Australia, Oman and Mozambique. Government Policy: The government has a favorable policy for steel manufacturers. However, there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore, the regulatory clearances and other issues are some of the major problems for the new entrants. Tata Steel being a century old company under the flagship Tata Sons which is known for its Corporate Social Responsibility already enjoys a respectable position in front of the Indian Government. The Jharkhand 4|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

government on May, 24th 2009, has granted a prospecting licence (PL) to Tata Steel for the Ankua iron ore mines. Product differentiation: Steel has very low barriers in terms of product differentiation as it doesnt fall into the luxury or specialty goods and thus does not have any substantial price difference. However, Tata Steel still enjoys a premium for their products because of its quality and its brand value created more than 100 years back. Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized wire products), Tata Pipes (pipes for construction)and Tata Structure (contemporary construction material). Currently two Global Steel majors namely Arcelor- Mittal and POSCO, are posed to be the biggest threat as they plan to enter the Indian Steel Industry very soon. Bargaining power of suppliers: High attractiveness Since domestic raw material sources are insufficient to supply the Indian steel industry, a considerable amount of raw materials are imported. For example, iron ore deposits are finite and there are problems in mining sufficient amounts of it. Indias hard coal deposits are of low quality. India is the worlds sixth biggest coal importer. In order to safeguard itself from the high bargaining power of the buyers, Tata Steel has forayed much earlier into the strategy of Backward Integration. Ownership of raw materials and a continuous improvement in production has been the key to Tata Steels profitability. Tata Steel and state-owned SAIL have largely been able to withstand raw material price fluctuations due to captive iron ore mines. Tata Steel is also one of the least cost markers of steel in the world. The company is dependent on imports for a major portion of its raw material iron ore and coking coal requirements. Tata Steel is self-sufficient to the extent of 25 per cent for iron ore needs. With supplies coming in from its mines at New Millennium Corporation in Canada and potentially from the Ivory Coast over a longer term, its iron ore security would gradually increase to around 62 per cent by 2015. Overall, raw material security would reach 50 per cent by 2015 and go up to about 60 per cent by 2018. It is also evaluating several other mineral projects in Brazil and Australia. Progressing towards the goal of achieving logistics control, Tata NYK Shipping Pte Ltd, the Singaporebased joint venture (50:50) between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK Line) was floated to handle ocean transportation of bulk cargoes such as coal, iron ore, limestone as well as finished steel, both imports and exports, for Tata Steel and also for other Tata Group companies.

5|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

To achieve coal security by way of imports, the company has formed a joint venture with an Australian company for producing coal in Mozambique, acquired strategic interest of five per cent with 20% of take rights in the coal mining project in Australia in partnership with several other foreign companies and formed a 50:50 joint venture with Steel Authority of India Ltd (SAIL). For limestone, Tata Steel has entered into a joint venture with the Al Bahja Group of Oman for a 70% stake. The joint venture will undertake mining of limestone in the Uyun region in Salalah province of Oman. By undertaking such long term strategies to increase its raw material security, Tata Steel is making it difficult for the suppliers of raw material to bargain exorbitant prices. Threat of substitutes: Low attractiveness Plastics and composites pose a threat to Indian steel in one of its biggest markets automotive manufacture. For the automobile industry, the other material at present with the potential to upstage steel is aluminum. Stainless producers themselves are offering their customers a range of alternatives in an effort to prevent business being lost to non-ferrous or carbon steel materials. Such options include lower-nickel duplex grades and ferritic types. In the meantime, nickels fluctuations will continue to create problems for the stainless industry worldwide. However, at present in India the high cost of electricity for extraction and purification of aluminum weighs against viable use of aluminum for the automobile industry. Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the manufacture of automobiles and consumer durables. Bargaining power of Consumers: Mixed attractiveness Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get favorable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits. Rivalry among competitors: High attractiveness The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports. Steel, being a commodity it is, branding is not common and there is little differentiation between competing products. The 4 major domestic rivals are SAIL, JSW, ISPAT & ESSAR STEEL. Rest is all small mills which together accounts for 30% of the total market share.

6|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

Competition Analysis In Economics the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. This may also assist in determining the market form of the industry. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the market share, as a percentage, of the four largest firms in the industry. In general, the N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. The 4 firm concentration ratio of the Iron and Steel Industry is 71%. This implies that there is oligopoly in the industry as it is dominated my few major players. Major percentage of market output is generated by the 4 largest firms in the industry.

Key Recommendations
Tata Steel is currently stuck in the middle from the business strategy point of view. We recommend Tata steel to increase its market share and reduce costs. Total crude steel production in India for 2010-11 was around 69 million tonnes. TATA Steel Share is 11%, SAIL 32% and JSW 19%. At a broad level, Tata Steel should focus on optimizing the utilization of its current production capacity (reduce downtime, wastages, etc), boost quality perception to lure customers away from competitors, reduce costs to increase margins and invest in expansion plans to keep up with the growth rate of the Indian economy. We recommend: Cost optimization Operating Costs in any steel manufacturing concern can be broadly divided in these categories, to reduce costs, Tata steel should focus on each of these areas and look to reduce or optimize costs. 1. Raw material, stores and supplies (32% of total expenses for Tata steel in 2011-12, 28% increase from 2010-11) a. Backward integration: Tata steel relies heavily on imports of raw materials which added to increase in costs after the rupee depreciation. Tata Steel is self-sufficient to the extent of 25 per cent for iron ore needs. We recommend the strategy of continued backward integration to reduce dependence on external suppliers to an even greater extent. Tata steel should continue to focus on captive mines which would guarantee a continuous supply of iron ore and coke at stable costs. b. Price fluctuation and interest costs: To safe guard against price volatility due to rupee fluctuation and reduce forex losses Tata steel should negotiate long term contracts with price protection, reduction in inventory levels would also protect against price changes and provide benefits of spot price reduction in absence of long term price contracts.

7|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

c. Wastage: Company can reduce raw material and wastage costs by employing efficient recycling measures and adopting latest innovations in technology and processes. 2. Employee and labor costs (7% increase from 2010-11) Reduce downtime: Tata is known for its employee friendly policies across the world. This image helps Tata group in negotiating contracts with government and win special deals with regard to price subsidies. The wages costs cannot be reduced unless the company decides to cut down its workforce. We recommend optimization of the employee and labor output without actual reduction in labor force. The company must invest in safety measures to reduce employee and labor downtime due to accidents or illness. 3. Freight and handling (11% increase from 2010-11) Better deals: Freight and handling charges increased for Tata steel in 2011 by 11% from 1541 Crore rupees. Freight costs for steel makers vary according to proximity to sources and existing contracts between the steel makers and the miners. The freight costs for Tata steel can be reduced by having exclusive deals with mines that provide for raw materials. Also Tata steel should look at mines for iron ore and coal closer to India and reduce dependence on mines that are across the globe. Backward integration strategy would also help to reduce these costs. 4. Machinery maintenance and repairs Tata group can look at in house innovations to improve process efficiency and reduce production costs. The company should set up a dedicated work force comprising of employees from various expertise groups to relook at the processing techniques, waste management, emissions and suggest improvements and cost saving measures. The employees that closely work with these operations are best suits to optimize them and increase cost savings. 5. Power, government duties including royalty ,etc Leverage reputation via CSR initiatives to gain better deals from government, ask for subsidies, waivers, etc. We recommend: Production changes, innovation and growth Tata Steel is a 105 year old company with large expenses on repairs and maintenance (9% increase from 2010-11). It should build a reputation of having the latest technological updates in production techniques, machinery and personnel. All the major domestic competitors like SAIL, ESSAR, JSW, JSPL have announced massive expansion plans recently: SAIL has announced that it will achieve production capacity of 40 Million Tons by 2020. JSW plans to expand its production to 32 Million Tons by 2020. Other 8|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

players such as JSPL, ESSAR have similar production expansion plans which will contribute in overall achievement of 200 Million Tons steel production by the year 2020. Tata Steel should continue its growth plans for the Jamshedpur and Orissa plants to maintain and grow its market share. Company should try to see that so much of production doesnt create over supply of steel in the market as it will drive down the prices, rather it can aim at making Specialty Steels products like stainless steels, Tool Steels, Die Steels, Valve Steels etc. TATA Steel should focus on R&D and increase its expenditure on R&D to be able to assimilate the technology faster. Resource utilization must be more effective to improve on the productivity. It should invest in innovation to increase labor productivity from 100Tn/MY to 250Tn/MY. TATA Steel can look at exploring the rural markets where it can source replacing the conventional agricultural tools with low cost steel products. TATA steel can introduce cost effective fencing, housing products and other possible applications. Steel production processes are energy dependent and price movements in the energy market would accordingly affect Tata Steels bottom line. Invest in energy conservation techniques like boiler efficiency improvement, reduce CO2 emissions, install waste heat recovery mechanisms, etc. Expand in the Avenues of Energy and Power Sector - Steel is the main material used in delivering renewable energy. TATA Steel along with wind mill power generation companies can tie out with Indian government on the wind power generation which benefits all three. Explore avenues in Infrastructure development The major investments required in infrastructure are expected to be a significant driver of steel consumption in the domestic market as infrastructure and construction combined account for 80% of Indias steel consumption. TATA Steel should tie out with TRIL to invest in infrastructure development activities.

Plan and implementation

Steel demand in India is mainly driven by the construction sector, which consumes about 60% of the total production. The automobile sector consumes about 11%. Indian Government is investing hugely on Infrastructure development projects like construction of national highways, flyovers and metro rail in metropolitan and cosmopolitan cities. This is a biggest opportunity before TATA Steel for increasing consumption of steel in almost all sectors in India. Indias per capita 9|Page

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

consumption of steel is underrated and is about 42Kg per head against global average per capita consumption of 150 kgs. There is long way ahead and to go for India.

2013

Identify , upgrade and modernize old plants through brownfield projects. Implement the best practices from Nippon and Posco to increase labor productivity from 100Tn/MY to 250Tn/MY. Innovate on production improvement methodologies like TPM and KM to increase labor productivity and Steel quality Expansion for current plants productive capacity. Acquire and development of Mining projects for its raw material security for iron ore and coking coal. Invest in R&D in improve production of superior quality of steel

2014

2015

Along with Wind power generation companies tie out with Indian govt to generate wind power to secure power and increase production sales by catering steel supply to wind mill machinery and equipment. Tie out with TRIL to invest in Infrastructure development to create demand for steel in Infrastructure and construction sector. Innovate to create Specialty Steels products Explore rural markets to source replacing conventional agricultural tools with low cost steel products.

2016

Contingency plans
Access the export market to improve its sales - It is estimated that world steel consumption will double in next 25 years. Tata Steel -India exports only 12% of their Steel output. In case TATA steel cant capture Indian market, it can focus more on exports. Converting Scrap into Steel - Rely on scrap steel for production rather than iron ore All steel created as long as 150 years ago can be recycled today and used in new products and applications. By sector, global steel recovery rates for recycling are estimated at 85% for construction, 85% for automotive, 90% for machinery and 50% for electrical and domestic appliances. Leading to a global weighted average of over 70%.

10 | P a g e

TATA Steel - Strategic Analysis and Recommendations Financials

ROE: Decreasing Trend

August 31, 2012

The companys ROE has fallen from 36% in FY 2005-06 to 13% in FY 2011-12. This is primarily due to the substantial increase in interest costs and also a slight fall in sales turnover. This is also because of the continuous increase of debt on books. The companys debt has increased from Rs.4225.61 Cr. in 2003 to Rs. 21353.20 Cr. right now (mainly due to Corus acquisition). It will take more than 5 years to pay off its debt. The average ROE for the last 10 years is 30% approx. which is more than the calculated Ke which is 21.82% (refer appendix). Hence, looking at the overall performance over a 10 year period, we can say that TATA Steel is a profitable company. It is the interest cost on its debt that is eating up a huge chunk of its profits, especially on a consolidated basis. Financial Projections We suggest reducing costs and improving the ROS from the current 20% to 25% in 2016. Also, we recommend continuing the same sales-to-asset & assets-to-equity rations at 0.43 & 1.49 respectively. This will improve the ROE from the current 13% to 16.02% in 2016. The current sales growth rate is around 15% in FY 2011-12. We recommend continuing with the same annual sales growth rate of 15% for 2013 & 2014. In the year 2015 we target to grow at 20% considering the increase in production and sales from the investments made in the next 2 years. Hence after, we forecast an annual growth of 15% in 2016. To achieve this company has to grow its assets from Rs. 78317 Crs currently to Rs. 144023 crs by 2016. Company would need to get in some fresh investments which could be in the form of fresh equity to achieve these targets.

Suggest ratios for next 4 years & forecasts for Sales, assets, investments and resources with growth rate 15% for 2013, 15% for 2014, 20% for 2015, 15% for 2016 2013 2014 2015 2016 ROE, % 14.10% 14.74% 15.38% 16.02% S/A 0.43 0.43 0.43 0.43 A/E 1.49 1.49 1.49 1.49 ROS, % 22% 23% 24% 25% Sales 39,023.48 44,877.00 53,852.40 61,930.26 Total assets 90,752.28 104,365.12 125,238.14 144,023.86 Profit 8,585.17 10,321.71 12,924.58 15,482.57 Equity 60,907.57 70,043.70 84,052.44 96,660.31 Note: All amounts in Rs Crores.

11 | P a g e

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

Market Share & Competitors In India 70% of the Steel market is captured by the four major players SAIL, TATA Steel, JSW & VISA Steel. TATA Steel has a market share of 11% in India. The table compares TATA steel with its competitor on various parameters. Parameters Production Capacity (mtpa) Market Share Year of establishment Products 7.4 Tata Steel 13.5 SAIL 8.4 JSW 3.5 VISA Steel

11% 1907 Construction Bars, Hot rolled sheets & coils, Cold roll sheets & coils, wires and rods 46,944.63 Rs 118.75 billion Operations in 24 countries & commercial presence in over 50 countries

32% 1954 Rods, pipes, rails, Hot rolled sheets & coils, Cold roll sheets & coils 37,069.47 Rs 430.34 billion Export to over 20 countries, JV to acquire coal mines abroad, expansion plan with emphasis on state of the art technologies

19% 1984 Hot rolled sheets & coils, Cold roll sheets & coils, galvanized sheets & coils 17,225.27 Rs 30 billion Acquisition of steel mill in US, tie up in Japan for high grade automotive steel

8% 1996 Alloy & steel metals catering to automobile, railway, infrastructure, defense sector etc 353.29 Rs 13.32 billion Presence in India, China, Australia, Indonesia, South Africa & Singapore

Net Worth (crores) Revenue/ Turnover Global Presence

12 | P a g e

TATA Steel - Strategic Analysis and Recommendations

August 31, 2012

Appendix 1: Total Revenue and Profit growth for Tata Steel

40000 35000 29396.35 30000 25000 19652.53 in Crore Rs 20000 15135.41 15000 10000 5000 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 3506.38 4222.15 4687.03 5201.74 5046.8 6865.69 6696.42 17458.39 24348.52 25021.98 33933.46

Profit After Tax Total Revenue

Appendix 2: Porters 5 forces model for Tata Steel

13 | P a g e

TATA Steel - Strategic Analysis and Recommendations Appendix 3: Ke ratio calculation

Beta () 1.41 http://beta.bseindia.com/indices/betavalues.aspx http://www.tradingeconomics.com/india/interest-rate Rf 8.00 Avg return for government bonds over 10yrs

August 31, 2012

http://www.lifins.in/attachment/MutualFund_SensexPerformance.html E(Rm) 17.8 Avg return on BSE for 10 yrs

For above data, Ke is 21.82 http://en.wikipedia.org/wiki/Capital_Asset_Pricing_Model

Appendix 4: Consolidated Financial Ratios

Consolidated Financial Ratios
20112010200912 11 10 2008-09 2007-08 10.18% 14.40% 9.12% 12.55% 13.90% 4.26% 8.35% 1.78% 7.43% 7.65% 8.62% 13.98% 13.14% 29.88% 93.06% 93.04% 68 41 2.15 1.16 1.68 2.69 467.57 54.28 25% 8.67 66 40 2.18 1.55 1.77 4.58 409.02 99.03 15% 6.27 5.69% 15.57% 2006200207 2005-06 2004-05 2003-04 03 30.73% 32.23% 39.35% 31.19% 23.79% 25.09% 27.20% 34.08% 24.27% 14.10% 39.47% 48.31% 27.71% 16.12% 35.60% 79.18% 45 47 1.65 1.14 1.39 5.09 89.23 28 32% 4.78

EBITDA/Turnover PBT/Turnover Return on Avg Capital Employed Return on Avg Net Worth Asset Turnover (S/A) Inventory Turnover in days Debtors Turnover in days Gross Block to net block Net Debt to equity Current ratio Interest cover ratio Networth per share Earnings per share Dividend payout P/E ratio

21.13% 23.31%

-8.01% 16.19% 51% 34.19% 43.57% 62.02% 45.96% 98.12% 128.56% 108.27% 76.65% 120.89% 107.44% 100.15% 72 44 2.33 1.77 1.46 1.6 278.28 -24.92 -45% -25.36 55 39 2.39 1.65 1.78 4.32 330.49 66.07 30% 3.12 37 28 2.51 1.99 1.87 3.46 472.03 176.81 11% 3.92 46 21 1.65 0.84 2.45 16.38 223.08 64.66 26% 6.95 45 23 1.67 0.06 1.35 35.21 181.53 67.62 22% 7.93 42 24 1.65 0.22 1.11 28.52 128.95 65.27 23% 6.14 40 30 1.7 0.42 1.07 21.89 81.52 32.4 23% 11.84

14 | P a g e

TATA Steel - Strategic Analysis and Recommendations

2011-12 Net profit (PAT) Sales Total assets Shareholders' Equity ROE, % ROS, % S/A A/E 2010-11 2009-10 2008-09 2007-08

August 31, 2012 2006-07 2005-06

6696.42 6865.69 5046.8 5201.74 4687.03 4222.15 3506.38 33933.46 29396.35 25021.98 24348.52 19652.53 17458.39 15135.41 78317.08 75519.64 63365.25 57122.68 45328.07 23741.49 12271.45 52621.53 46945.24 36961.94 13.00% 20.00% 0.43 1.49 15.00% 23.00% 0.39 1.61 14.00% 20.00% 0.39 1.71 30176.5 27306.38 14096.16 17.00% 21.00% 0.43 1.89 17.00% 24.00% 0.43 1.66 30.00% 24.00% 0.74 1.68 9755.3 36.00% 23.00% 1.23 1.26

Total ShareHolder Return: Below are the Dividends, Share prices for TATA STEEL at the beginning and closing for the respective years.
YEAR D% Dividends Price Beg Price End TSR

2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

120 120 80 160 160 155 130 130 100 80

12 12 8 16 16 15.5 13 13 10 8

440 608 596 153 596 367 311 287 292 104

366 -0.51667 324 -2.26667 648 0.75 578 2.75625 180 -2.5 756 2.609677 381 0.638462 293 0.146154 289 0.07 318 2.775

According to which TSR stands value stands at 117%.

=(((366+123.5)/104)^0.5)-1
For TATA STEEL, Ke Value stands at 21% and as such TSR > Ke, this particular organization is doing effectively with respect to its profitability.

15 | P a g e

TATA Steel - Strategic Analysis and Recommendations References

August 31, 2012

Steel Sector Analysis Report http://www.equitymaster.com/research-it/sectorinfo/steel/Steel-Sector-Analysis-Report.asp Ministry of Steel, India - Annual Report 2011-12 12)/English/Annual%20Report%20(2011-12).pdf http://steel.gov.in/Annual%20Report%20(2011-

IRON AND STEEL INDUSTRY IN INDIA March, 2012 steel-industry.pdf Sustainable steel -

- http://www.cci.in/pdf/surveys_reports/iron-

http://www.worldsteel.org/media-centre/key-facts.html

16 | P a g e