COMPANY HISTORY 

Tata steel, India’s largest and world fifth largest steel maker was established in the year 1907 by Jamshedji Tata. It is a Fortune Global 500 company raked 315 in the list. The company is operating in 24 countries and has trading links with over 50 countries. The company’s core business is manufacture of steel and Ferro alloys. In 2007 the company acquired Corus an Anglo-Dutch steel making company. 

 RECENT DEVELOPMENTS 

The company recently set up Tata steel Global, a subsidiary of Tata steel, to manage and govern the international assets of the company including the Corus. The company is on talks with Vietnam Government to commission a 4.5 MT Greenfield project. It entered in to a Joint Venture agreement with Vietnam Steel Corporation and Vietnam cement Industries Corporation to set up a Steel complex in Vietnam. The company recently raised Rs.200 Billion through a private placement of redeemable Non-convertible rupee debentures. These securities has been rated AAA (High safety) by Fitch India.  

 FINANCIALS 

The company announced its first quarterly results recently. These results are compared with the results of the previous quarter and are tabulated below. 

The company for the quarter ended June 30 2008 posted a net profit of Rs.148.8 Billion growth of 21.7% over the same period last fiscal.  Sales revenue of the company for this quarter stood at Rs.616.5 Billion an increase of 46% as against the revenue of Rs.419.7 Billion posted in the same quarter last year. Steel business accounted for Rs.530.3 Billion of revenue and Ferro alloys business accounted for Rs.83.8 Billion of the total revenue. Total income soared by 30.3% to Rs.617.7 Billion from Rs.430 Billion posted in Q1 FY08.Rise in the raw materials and operating costs remained the major concerns for the company.

The company lost nearly Rs.30.3 Billion on the foreign exchange front due to the dollar appreciation adversely affecting the value of Convertible alternative reference securities (CARS) issued in September. Steel production for the quarter rose by 11% to 1,186,873 tons from 1,064,832 tons produced in the quarter ended June 30 2007.Hot metal production was at 1.387 MT and crude steel production was at 1.253 MT an increase of 3.2% and 8.6% over the same period last fiscal respectively. Sales to Automotive sectors steeply increased and the market share grew to 42% as against the share of 38% in Q1 FY08. Sales of skin panels moved to 7477 tons as against 4248 tons sold in the corresponding quarter previous year.  

COMPANY OUTLOOK

The company is planning to increase its manufacturing capacity through Brownfield and green field expansions. In June 2008, through Brownfield expansion the company expanded its production capacity in Jamshedpur plant to 7MTPA from 5MTPA.It is also planning to set up Greenfield plants at Jharkhand and Chattisgarh plants. In the last quarter the company substituted Jhama coal for expensive raw petroleum coal and thus reducing the input costs to a large extent.

The company is looking for acquisition of steel and raw material facilities in the South Asian countries. India is poised to be a major self-sufficient, low-cost steel manufacturing nation. Currently India produces 53 MTPA steel, (4% of global steel production), and consumes 59 million tons. This works out to a per capita consumption of steel of 49 kgs. China, by contrast, currently produces 489 million tons of steel (36% of global steel production), and consumes 420 million tons. The per capita consumption of steel in China therefore works out to be 318 kgs. – Approximately 6.5 times that of India.

It is broadly recognized that over the years India has fallen behind its Asian neighbors in keeping pace with investments in infrastructure. The availability of steel would be one of the important factors in such an essential development plan. Large public works schemes and infrastructure projects would provide tens of thousands of jobs through the construction of roadways, power plants, water projects and agriculture related schemes. Evidence seems to indicate a direct correlation between the level of domestic steel production in a country and its investment level.

India is still a net importer of steel. It would not seem out of the realm of reality that India could support a domestic steel  capacity of 100 million tons per year, with domestic consumption being, say, 85-90% of that output. If this capacity were based on maximizing the use of domestic iron ore and coking coal, such self-sufficiency could help insulate the country from the runaway price spiral and currency fluctuations that impact investment in infrastructure and industrial capacity. 

STOCK OUTLOOK

The stock is trading at the level of Rs.600-630. The stock has been in a long term correction since May 2008.The stock has given up all gains that have earned in the period of January-May losing more than 50%. This long term downward run took a temporary halt at the key long term support of Rs.580. The stock has strong support at Rs.580 and resistance level at Rs.690.Short term investors may pick this stock at this level and investors with long term perspective may accumulate this after the price gets stabilized at the level of Rs.660.