Tata Steel Future Projections

8/4/2019 Tata Steel Future Projections

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For Private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES.REFER TO THE END OF THIS MATERIAL.

INDIA DAILYFebruary 16, 2011 India 15-Feb 1-day1-mo 3-mo

Sensex 18,274 0.4 (3.1) (10.0)

Nifty 5,481 0.5 (3.1) (10.5)

Global/Regional indices

Dow Jones 12,227 (0.3) 3.7 9.1

Nasdaq Composite 2,804 (0.5) 1.8 11.6

FTSE 6,037 (0.4) 0.6 3.7

Nikkie 10,782 0.3 2.7 10.1

HangSeng 22,900 (1.0) (5.7) (3.3)

KOSPI 2,009 (0.1) (4.7) 5.8

Value traded India

Cash(NSE+BSE) 171 163 82

Derivatives (NSE) 1,507 2,105 1,429

Deri. open interest 1,547 1,524 1,716

Forex/money market

Change, basis points

15-Feb 1-day 1-mo 3-mo

Rs/US$ 45.5 2 7 29

10yr govt bond, % 8.1 (2) (12) 2

Net investment (US$mn)

14-Feb MTD CYTD

FIIs 50 (369) (1,756)

MFs 56 100 (282)

Top movers -3mo basis

Change, %

Best performers 15-Feb 1-day 1-mo 3-mo

HCLT IN Equity 483.0 0.2 2.6 23.1

BHARTI IN Equity 329.2 0.5 (4.2) 5.0

NACL IN Equity 405.2 1.9 6.2 4.7

TCS IN Equity 1097.7 (1.3) (2.0) 4.7

INFO IN Equity 3106.6 2.2 (3.1) 4.6

Worst performers

UT IN Equity 35.0 (3.6) (39.2) (53.0)

IVRC IN Equity 72.9 1.3 (33.7) (45.1)

PUNJ IN Equity 72.5 (1.0) (27.6) (39.2)

IBREL IN Equity 115.3 (1.7) (5.2) (38.3)

RCOM IN Equity 101.6 4.4 (26.7) (37.1)

Contents

Results

Tata Steel: Solid operational performance

Reliance Power: Expensive despite recent correction

IVRCL Infrastructures: Revenue and EBITDA gains nullified by interest cost anddepreciation

Jubilant Lifesciences: Disappointing quarter

News Round-up

India's textile, pharmaceuticals & services sectors could expect greater marketopenings & automobile parts companies may face stiffer competition after thecountry signs a trade agreement with Japan. (ECNT)

Oil PSUs to hike jet fuel price 4.1% in metros. Oil marketing companies will hikeprices by an average of INR 2,204.48 a kilo litre. (THBL)

Oil minister S Jaipal Reddy indicated that the govt. may not be able to clear CairnEnergy Plc's move to sell control in its Indian arm to Vedanta Resources without

meeting state run ONGC's (ONGC IN) demand for an equitable royalty regime in the

Barmer oilfields that account for 90% of Cairn India's (CAIR IN) valuations. (TTOI)

Kishore Biyani is spinning off his consumer durables business, Ezone, into a separateentity in order to maximize value from it. The promoter of Pantaloon Retail (PF IN) is

likely to induct strategic investors in 3 months. (ECNT)

Reliance Industries Ltd (RIL IN) is now going after the tablet PC market, presentlydominated by Apple and Samsung at the premium end. (BSTD)

GMR Infrastructures (GMRI IN) has raised around USD 113 mn of debt from IndiaInfrastructure Finance Company Ltd for modernizing Delhi International Airport.

(BSTD)

Tata Motors (TTMT IN) said it was redrawing distribution plans of its joint venturewith Fiat as sales number of the Italian car maker had not been up to expectations.

Tata Motors global sales up 16% in January. (BSTD)

TCS (TCS IN) expects to make its fully-integrated information technology solution forsmall and medium enterprises, iON, a 1 bn on business in five years. TCS has already

signed up over 130 clients for iON and plans to take the customer base to 1,000 in a

year. (BSTD)

Jindal Steel and Power Ltd (JSP IN) gets conditional green nod for Orissa plant. (THBL) Venus Remedies Ltd (VNR IN) announced the launch of its super speciality oncology

segment 'Passion Oncobiz', entailing an investment of USD 2 mn. (THBL)

HCL Technologies (HCLT IN) sets up Global Enterprise Mobility lab in Singapore.(THBL)

Source: ECNT= Economic Times, BSTD = Business Standard, FNLE = Financial Express, THBL = Business Line.


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For private Circulation Only. FOR IMPORTANT INFORMATION ABOUT KOTAK SECURITIES RATING SYSTEM AND OTHER DISCLOSURES, REFER TO THE END OF THIS MATERIAL.

Indian operations shine with unexpected spike in steel realization

Tata Steel reported 3QFY11 standalone EBITDA of Rs28.2 bn (+30.8% yoy, +7.3% qoq), 1.7%

ahead of our estimate. Unexpected 8.8% qoq increase in realization to US$993/ ton (our estimate

was US$958/ ton) drove most of the surprise at the EBITDA level. Such a spike in realizations was

against the industry trend; Tata Steel management attributed this to qoq increase in long productprices (Rs29,150/ ton, +6% qoq); in addition other steel products may have also contributed. Flat

product realizations declined sequentially. EBITDA/ ton increased to US$372, up 12.2% qoq. Net

income of Rs15.1 bn (+27% yoy, -26.7% qoq) missed our estimate on higher tax payout.

Consolidated net income missed our estimate, operational performance was strong

Tata Steel reported consolidated EBITDA of Rs34.2 bn (-6.7% qoq, +16.1% yoy). However, net

income of Rs8.3 bn (adjusted for extraordinary items) missed our and Street estimates. We

attribute the miss to two factors (1) Rs1.2 bn impairment charge in other income line after a fire in

Imjuiden plant destroyed a few facilities and (2) high effective tax rate of 39.7%.

Corus performance weak but on expected lines

On expected lines Corus reported a weak quarter with EBITDA of US$88 mn and EBITDA/ ton of

US$25 (-55% qoq, -33% yoy), though still better than our estimate. Lag impact of increase in raw

material prices (+9% qoq) on the P&L hurt profitability on a sequential basis. Performance was

helped by carbon credit sales of US$54 mn which in turn was partly offset by US$31 mn

impairment charge on certain Imjuiden assets. Tata indicates that carbon credit sales may recur as

long as plant capacity utilization is above 75%. Expect Corus profitability to improve in 4Q.

Maintain BUY on attractive valuations

Tata Steel trades at 5.9X FY2011E and 5.1X FY2012E EBITDA (adjusting for CWIP) and 8.8X

FY2012E earnings. Tata Steels brownfield expansion and investments in raw material projects can

deliver significant value in the medium term. Reinitiate with a BUY rating and end-FY2012E target

price of Rs710. We assign 6.5X to Tata Steel Indias FY2012E EBITDA and 5.5X to Corus.

Tata Steel (TATA)Metals & Mining

Solid operational performance. Tata Steels standalone and consolidated EBITDA was1.7% and 7% ahead of our estimate. However, below EBITDA line items such as high

tax provision and loss on impairment of assets led to net income miss. Corusperformance, on expected lines, was extremely weak. Tata Steel can deliver significant

earnings growth and stock performance over the next two years from cost-push based

steel price increase, growth from India brownfield expansion and overseas raw materialprojects. We reinstate coverage with a BUY rating and end-FY2012E TP of Rs710.

Tata Steel

Stock data Forecasts/Valuations 2010 2011E 2012E

52-week range (Rs) (high,low) EPS (Rs) (3.3) 64.4 69.7

Market Cap. (Rs bn) 589.6 EPS growth (%) (103.6) (2,051.8) 8.2

Shareholding pattern (%) P/E (X) (186.8) 9.6 8.8

Promoters 32.5 Sales (Rs bn) 1,023.9 1,128.4 1,204.5FIIs 17.0 Net profits (Rs bn) (3.3) 65.3 70.6

MFs 3.7 EBITDA (Rs bn) 80.4 153.8 175.4

Price performance (%) 1M 3M 12M EV/EBITDA (X) 13.2 6.7 5.8

Absolute (0.9) (0.3) 14.2 ROE (%) (1.5) 22.4 18.4

Rel. to BSE-30 2.2 10.8 0.2 Div. Yield (%) 1.1 1.2 0.0

Company data and valuation summary

739-449

BUY

FEBRUARY 16, 2011

RESULT

Coverage view: Attractive

Price (Rs): 617

Target price (Rs): 710

BSE-30: 18,274


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Tata Steel Metals & Mining

KOTAK INSTITUTIONAL EQUITIES RESEARCH 3

Debt increases by 11% to US$13.2 bn

Tata Steels consolidated gross debt and net debt increased by ~US$1.1 bn qoq to US$13.2

bn and US$11.8 bn, respectively. The following factors may have led to the increase (1)

increase in working capital requirements in Europe due to increase in raw material prices, (2)

US$250 mn increase due to fluctuation in various foreign currency debt of Tata Steel India.

Tata Steel indicates that all its FX debt is fully hedged and (3) gross block which increased byabout a US$1 bn. Note that Tata Steel has aggressive capex plans of about US$2.3 bn for

FY2012E and US$2.1 bn for FY2013E.

Update on strategic projects

DSO and New Millennium Corp. Tata Steel and New Millennium Corporation (NML) are inexclusive talks with respect to development of two of the latters iron ore projects

LabMag and KeMag which cumulatively have reserves of up to 5.6 bn tons. This

exclusivity agreement will expire on Feb 28, 2011. As far as the Direct Shipping Ore

project is concerned, environmental approval for the first phase has been obtained and

commercial iron ore production will likely commence by 2QCY12E.

Orissa project. Ground work to start construction for the Orissa project is alreadyunderway. Tata Steel has secured the project site with boundary wall and fence and

started piling, besides foundation at the sinter plant has commenced. Construction of

other utilities is under progress. Initial phase of the Orissa plant will start with steel-

making capacity of 3 mtpa.

Few changes to our estimates

We build in our economists revised Re/US$ forecast of Rs45.6, Rs45.5 and Rs44 for

FY2011E, FY2012E and FY2013E, respectively, from Rs45.5, Rs44.5 and Rs44.1 earlier. We

have also fine tuned our HRC price assumption for India business over the next two years

and build in higher raw material prices. We also model recent issuance of 57 mn share atRs610 from its follow-on public offering. All factors results in 6.5% and 3.9% reduction in

our FY2012E and FY2013E EPS. Our EBITDA estimates remain largely unchanged. Exhibit 1

details the key changes to our estimate. BUY with FY2012E fair value of Rs710/ share.

We value standalone India operations of Tata Steel at 6.5X FY2012E EBITDA. This is higher

than historical levels, but we believe it is fair as it partly captures volume growth potential

for the India business. Put slightly differently, FY2012E EBITDA does not capture brownfield

expansion while the debt taken for this expansion is fully captured in the EV; assigning

higher multiple corrects this anomaly. We assign 5.5X to Corus and far-east operations, fair

noting lower profitability and lack of raw material security. We value listed investments at a

20% discount to the market price.

Our target price captures value from MOU signed by Corus for sale of Teeside Cast Products

(TCP) plant to SSI, Malaysia for US$500 mn; this adds Rs24 to fair value. However, our fair

value does not capture any upside from New Millennium Corp (Canadian iron ore project) or

Riversdale Mining investment. Note that Rio Tinto recently extended an open offer to

acquire Riversdale Mining at an equity value of US$3.9 bn. Tata Steels stake in Riversdale is

worth Rs40/share at Rios acquisition offer price.


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Metals & Mining Tata Steel

4 KOTAK INSTITUTIONAL EQUITIES RESEARCH

Exhibit 1: Tata Steel, Change in estimates, March fiscal year-ends, 2011-13E (Rs mn)

Revised estimates Old estimates % change

2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E

Earnings (consolidated)

Net sales 1,128,398 1,204,467 1,232,243 1,149,759 1,181,781 1,224,905 (1.9) 1.9 0.6EBITDA 153,843 175,421 202,586 156,206 175,766 201,721 (1.5) (0.2) 0.4

Adj. PAT 65,270 70,606 88,655 63,411 71,290 87,106 2.9 (1.0) 1.8

EPS (Rs) 64.4 69.7 87.5 66.3 74.5 91.1 (2.9) (6.5) (3.9)

Volumes

India (mn tons) 6.4 6.9 9.0 6.5 7.1 9.0 (1.7) (2.8)

International operations (mn tons) 14.4 14.7 14.8 14.8 14.9 15.1 (2.4) (1.6) (2.3)

Pricing

HRC price India (US$/ton) 728 756 744 728 743 738 1.7 0.7

Realization (US$/ton) 1,110 1,142 1,117 1,085 1,100 1,067 2.3 3.8 4.7

Source: Kotak Institutional Equities estimates

Following factors underpin our BUY rating on Tata Steel

Cost-push based steel price increase will benefit Tata Steel India. We expect steelprices to move up led by (1) a cost-push increaseiron ore prices have increased by 20%

in the past three months to US$187/ ton China CFR on modest revival in demand

combined with persistent supply issues and (2) seasonal increase in demand in 1HCY11E.

This should benefit integrated players such as Tata Steel, in our view. A US$10/ ton

increase in iron ore prices benefits earnings by 5%. We assume that Corus with a

converter business model will earn steady conversion margin and will have the ability to

pass on raw material price increase to consumers.

Commissioning of value-accretive India capacity expansion. Tata Steel India is ontrack to commission 2.9 mtpa steel-making capacity expansion in Jamshedpur by end-2011. This will reflect in strong 27% volume growth in FY2013E. Note that the expanded

capacity will be self-sufficient on iron ore and generate profitability in excess of US$300/

ton. More important, EBITDA contribution from Indian operations may increase to 70%

of the overall EBITDA by FY2013E from less than 50% in FY2008-09. In our view, this will

significantly de-risk earnings.

Benefits from overseas raw material projects may surprise on the upside.Investments in raw material security, i.e. Riversdale Mining and New Millennium (iron ore

project in Canada) can potentially add US$300 mn to annual EBITDA. In any case, Tata

Steels holding is worth Rs40/share, based on Rios bid price for Riversdale. This value is

not captured in our target price and can be a positive catalyst.


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Exhibit 2: Interim results of Tata Steel (standalone), March fiscal year-ends (Rs mn)

(% chg.)

3QFY11 3QFY11E 3QFY10 2QFY11 3QFY11E 3QFY10 2QFY11

Net sales 73,974 73,423 63,749 71,068 0.7 16.0 4.1

Expenditure (45,768) (45,683) (42,180) (44,777) 0.2 8.5 2.2Consumption of raw materials (17,586) (16,301) (15,241) (15,637) 7.9 15.4 12.5

Staff Cost (5,985) (6,859) (6,523) (6,837) (12.7) (8.2) (12.5)

Power and fuel (3,454) (3,626) (3,032) (3,615) (4.8) 13.9 (4.5)

Freight and handling (3,968) (3,614) (3,581) (3,603) 9.8 10.8 10.2

Other Expenditure (14,775) (15,282) (13,803) (15,086) (3.3) 7.0 (2.1)

EBITDA 28,205 27,741 21,569 26,290 1.7 30.8 7.3

OPM (%) 38.1 37.8 33.8 37.0

Other income 113 630 2,636 7,327 (82.0) (95.7) (98.5)

Interest (3,354) (3,493) (4,157) (3,425) (4.0) (19.3) (2.1)

Depreciation (2,864) (2,871) (2,622) (2,815) (0.3) 9.2 1.7

Pretax profits 22,100 22,006 17,426 27,378 0.4 26.8 (19.3)

Extraordinaries

Tax (6,966) (5,502) (5,508) (6,726) 26.6 26.5 3.6Net income 15,135 16,505 11,918 20,651 (8.3) 27.0 (26.7)

Ratios

EBITDA margin (%) 38.1 37.8 33.8 37.0

ETR (%) 31.5 25.0 31.6 24.6

EPS (Rs) 15.3 17.8 12.1 20.9

Segment revenue

Steel business 67,731 58,325 64,971 16 4

Others 4,418 4,100 4,488 8 (2)

Segment EBIT

Steel business 23,015 20,141 21,764 14 6

Others 172 163 43 5 297

Margins

Steel business 34.0 34.5 33.5 (1.6) 1.4Others 28.9 21.7 32.9 32.9 (12.3)

Source: Company, Kotak Institutional Equities estimates


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Exhibit 3: Interim results of Tata Steel (consolidated), March fiscal year-ends (Rs mn)


Net sales 290,895 271,006 262,020 286,462 7.3 11.0 1.5

Expenditure (256,648) (238,986) (232,514) (249,739) 7.4 10.4 2.8

Consumption of raw materials (138,887) (120,191) (104,828) (124,064) 15.6 32.5 11.9

Staff Cost (36,087) (35,862) (41,999) (38,275) 0.6 (14.1) (5.7)

Power and fuel (10,314) (9,609) (10,845) (9,967) 7.3 (4.9) 3.5

Freight and handling (15,935) (14,009) (14,451) (14,676) 13.7 10.3 8.6

Other Expenditure (55,426) (59,314) (60,393) (62,757) (6.6) (8.2) (11.7)

EBITDA 34,246 32,020 29,506 36,723 7.0 16.1 (6.7)

OPM (%) 11.8 11.8 11.3 12.8

Other income (1,043) 714 4,099 8,143 (246.2) (125.5) (112.8)

Interest (7,432) (6,969) (7,630) (6,637) 6.6 (2.6) 12.0

Depreciation (11,264) (10,889) (11,547) (10,781) 3.4 (2.4) 4.5

Pretax profits 14,506 14,876 14,428 27,448 (2.5) 0.5 (47.1)

Extraordinaries 1,223 (1,957) (316) (162.5) (487.3)

Tax (6,240) (4,909) (8,148) (7,450) 27.1 (23.4) (16.2)Net income 9,489 9,967 4,323 19,682 (4.8) 119.5 (51.8)

Minority interest 161 103 (148) 103 56.9 (209.1) 56.9

Share of profit from associates 380 3 551 3 NM (31.0) NM

PAT after minority interest 10,030 10,072 4,726 19,788 (0.4) 112.2 (49.3)

Adjusted PAT 8,266 9,967 6,280 19,998 (17.1) 31.6 (58.7)

Income tax rate (%) 39.7 33.0 65.3 27.5

Ratios

EBITDA margin (%) 11.8 11.8 11.3 12.8

ETR (%) 39.7 33.0 65.3 27.5

EPS (Rs) 10.5 10.5 4.8 20.7

Segment revenue

Steel business 275,784 278,086 273,067 (0.8) 1.0

Others 32,357 26,020 30,067 24.4 7.6

Segment EBIT

Steel business 21,651 22,655 31,391 (4.4) (31.0)

Others 2,036 3,636 2,340 (44.0) (13.0)

Segment capital employed

Steel business 560,932 515,096 535,477 8.9 4.8

Others 51,757 40,055 48,788 29.2 6.1

Margins

Steel business 7.9 8.1 11.5 (3.6) (31.7)

Others 6.3 14.0 7.8 (55.0) (19.2)

(% chg.)



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Exhibit 4: Tata Steel, Quarterly analysis of cost-structure, March fiscal year-ends (US$/ton)

3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011

Tata Steel India

Steel business

Average realization 855 672 752 737 783 864 940 842 918Steel EBIT 246 147 228 239 270 342 387 282 312

Realization (US$/ ton) 906 723 803 798 847 927 1,014 912 993

Raw material cost 204 299 232 202 205 160 151 203 238

Employee cost 109 74 73 74 88 87 91 89 81

Power and fuel cost 50 32 47 42 41 43 56 47 47

Freight and handling 50 41 46 44 48 48 55 47 54

Other expenditure 222 122 162 173 185 201 217 196 200

EBITDA/ ton 270 155 243 264 280 387 444 332 372

Tata Steel (Consolidated)

Average realization 1,130 878 917 901 961 1,003 1,068 1,010 1,083

Steel EBIT 81 (40) (37) (22) 78 118 119 116 85

Steel EBITDA 117 (12) (3) 16 104 136 155 126 133

Realization (US$/ ton) 1,116 891 901 846 906 942 985 1,059 1,142

Raw material cost 616 514 460 395 362 361 375 459 545

Employee cost 150 130 153 145 145 135 137 142 142

Power and fuel cost 49 38 37 34 37 34 35 37 40

Freight and handling 47 44 45 49 50 51 57 54 63

Other expenditure 158 164 207 211 209 199 220 232 218

EBITDA/ ton 97 1 (1) 12 102 163 161 136 134


Exhibit 5: Tata Steel, valuation, March fiscal year-ends, 2012E basis (Rs mn)

EBITDA Multiple Enterprise value EV

(Rs mn) (X) (Rs mn) (Rs/share)

Tata Steel standalone 122,600 6.5 799,353 789

Tata Steel Europe 44,473 5.5 244,601 241

Tata Steel thailand and other businesses 6,515 5.5 35,834 35

Total Enterprise Value 1,079,788 1,066

Consolidated group net debt 400,056

Total borrowings 400,056 395

Arrived market capitalization 679,732 671

Add: Value of investments 39,530 39

Arrived market capitalization 719,262 710

Target price (Rs) 710

Source: Kotak Institutional Equities estimates


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Exhibit 6: China import iron-ore fines from India (China CFR) prices (US$/ton)

-

50

100

150

200

250

Feb-05

Jun-05

Oct-05

Feb-06

Jun-06

Oct-06

Feb-07

Jun-07

Oct-07

Feb-08

Jun-08

Oct-08

Feb-09

Jun-09

Oct-09

Feb-10

Jun-10

Oct-10

Feb-11

China CFR 63% Fe

Source: Bloomberg, Kotak Institutional Equities estimates

Exhibit 7: Tata Steel, Key assumptions, March fiscal year-ends, FY2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013E

Tata Steel (India)

Benchmark HRC Price (US$/ton) 705 749 635 728 756 744Volume (mn tons) 4.8 5.2 6.2 6.4 6.9 9.0

EBITDA/ton (US$/ton) 394 380 307 389 391 355

Corus

Average realization (US$/ ton) 1,034 1,254 981 1,070 1,060 1,055

Volume (mn tons) 22.8 19.0 14.2 14.4 14.7 14.8

EBITDA/ton (US$/ton) 88 103 (20) 58 67 77

Re/US$ rate 42.5 46.0 47.3 45.6 45.5 44.0



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Exhibit 8: Tata Steel (standalone), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013E

Profit model (Rs mn)

Net sales 196,910 243,157 250,220 289,175 318,985 382,533

EBITDA 80,138 91,334 89,521 113,490 122,600 141,098Other income 2,428 3,083 8,538 8,664 2,865 2,865

Interest (7,865) (11,527) (15,084) (13,428) (12,930) (10,448)

Depreciation (8,346) (9,734) (10,832) (11,475) (13,490) (17,616)

Profit before tax 66,355 73,156 72,143 97,251 99,046 115,900

Extraordinaries 4,309 20,700

Taxes (23,793) (21,139) (21,675) (28,308) (29,714) (34,770)

Profit after tax 46,870 52,017 50,468 89,643 69,332 81,130

Fully diluted EPS (Rs) 47.5 52.7 51.2 72.9 68.4 80.1

Balance sheet (Rs mn)

Equity 218,282 242,319 371,688 503,046 563,286 635,323

Deferred tax liability 6,818 5,857 8,677 9,856 10,847 12,006

Total Borrowings 234,942 324,188 252,392 237,392 207,392 177,392

Current liabilities 78,401 100,077 99,568 86,690 93,200 104,947

Total liabilities 538,443 672,441 732,324 836,984 874,724 929,668

Net fixed assets 82,561 109,945 121,624 125,149 166,660 284,044

Capital work in progress 43,675 34,877 38,436 98,436 98,436 8,436

Investments 41,032 423,718 449,797 449,097 449,097 449,097

Cash 4,650 15,906 32,341 59,500 48,824 67,210

Other current assets 364,974 86,945 90,126 104,802 111,708 120,880

Miscellaneous expenditure 1,551 1,051

Total assets 538,443 672,442 732,324 836,984 874,724 929,668

Free cash flow (Rs mn)

Operating cash flow excl.working capital 60,778 66,599 71,874 102,297 83,812 99,904

Working capital changes 1,764 7,373 11,818 (8,849) (396) 2,574

Capital expenditure (23,951) (27,711) (20,237) (75,000) (55,000) (45,000)Free cash flow 38,591 46,261 63,455 18,448 28,417 57,479

Ratios

EBITDA margin (%) 40.7 37.6 35.8 39.2 38.4 36.9

EBT margin (%) 35.9 30.1 28.8 40.8 31.1 30.3

Debt/equity (X) 1.1 1.3 0.7 0.5 0.4 0.3

Net debt/equity (X) 1.0 1.1 0.5 0.3 0.2 0.1

Net debt/EBITDA (X) 2.7 3.0 2.1 1.3 1.0 0.5

RoAE (%) 26.4 22.7 16.5 20.5 13.0 13.5

RoACE (%) 16.7 13.9 12.3 14.1 12.1 13.1



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Exhibit 9: Tata Steel (consolidated), Profit model, balance sheet and cash flow model, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013E

Profit model (Rs mn)

Net sales 1,315,336 1,473,293 1,023,931 1,128,398 1,204,467 1,232,243

EBITDA 177,824 181,277 80,427 153,843 175,421 202,586Other income 4,759 2,657 11,859 8,962 2,408 3,063

Interest (40,854) (32,902) (30,221) (28,076) (31,398) (30,147)

Depreciation (41,370) (42,654) (44,917) (45,048) (47,166) (50,401)

Profit before tax 100,359 108,378 17,147 89,680 99,264 125,100

Extraordinaries 63,351 (40,945) (16,837) 20,700

Taxes (40,493) (18,940) (21,518) (30,906) (29,779) (37,530)

Profit after tax 123,218 48,492 (21,208) 79,474 69,485 87,570

Minority interest (1,399) 409 (152) 400 360 324

Share in profit/(loss) of associates 1,682 607 1,269 507 761 761

Reported net income 123,500 49,509 (20,092) 80,381 70,606 88,655

Adjusted net income 110,441 61,750 (3,255) 65,270 70,606 88,655

Fully diluted EPS (Rs) 112.0 62.6 (3.3) 64.4 69.7 87.5

Balance sheet (Rs mn)

Equity 287,015 217,700 230,208 352,325 413,839 493,402

Deferred tax liability 24,545 17,094 16,541 17,645 18,141 18,767

Total Borrowings 590,973 653,732 531,004 476,004 461,004 446,004


Minority interest 8,327 8,949 8,841 8,441 8,081 7,757

Total liabilities 1,250,022 1,210,583 1,096,232 1,174,309 1,237,113 1,308,198

Net fixed assets 331,187 364,175 365,252 375,204 416,148 525,157

Capital work in progress 88,476 88,880 92,706 134,706 134,206 44,206

Goodwill 180,500 153,649 145,418 145,418 145,418 145,418

Investments 33,675 64,111 54,178 54,685 55,447 56,208

Cash 42,319 61,484 67,878 43,818 41,635 84,266

Other current assets 572,309 477,229 370,800 420,477 444,259 452,943

Miscellaneous expenditure 1,556 1,055

Total assets 1,250,022 1,210,583 1,096,232 1,174,309 1,237,113 1,308,198

Free cash flow (Rs mn)

Operating cash flow excl. working capital 117,771 116,077 25,583 114,669 114,740 135,534

Working capital changes (22,227) 2,254 46,465 (39,421) (7,628) (2,463)

Capital expenditure (79,967) (83,608) (69,472) (97,000) (87,610) (69,410)

Free cash flow 15,578 34,723 2,577 (21,752) 19,501 63,661

Ratios

EBITDA margin (%) 13.5 12.3 7.9 13.6 14.6 16.4

EBIT margin (%) 10.4 9.4 3.5 9.6 10.6 12.4

Debt/equity (X) 2.1 3.0 2.3 1.4 1.1 0.9

Net debt/equity (X) 1.9 2.6 1.9 1.2 1.0 0.7

Net debt/EBITDA (X) 3.0 3.1 5.5 2.7 2.3 1.7RoAE (%) 51.0 24.5 (1.5) 22.4 18.4 19.5

RoACE (%) 14.6 9.9 (34.8) 12.1 13.1 14.6



11/32


Operating results beat estimates on better availability

RPWR reported revenues of Rs2.5 bn, operating profit of Rs617 mn and net income of Rs1.4 bn

against our estimates of Rs2.1 bn, Rs348 mn and Rs1.9 bn, respectively. Higher-than-estimated

revenues were primarily on account of better availability during the quarter (~80%) resulting in

better-than-estimated average realizations. Management has indicated that Rosa has secured the

permission to blend imported coal and availability and PLF should improve further going forward.Net income miss was primarily driven by significantly lower-than-estimated other income (Rs1 bn

against our estimate of Rs2.9 bn) which was partially offset by (1) lower depreciation on account

of change in depreciation policy for Rosa plant to align with UPERC rates (resulting in depreciation

being lower by Rs297.9 mn) and (2) tax write-backs on account of higher provisioning in previous

quarters.

Maintain SELL despite recent correction as execution and fuel risks remain high

RPWR stock has corrected by ~35% in past three months and is now trading at 1.9X FY2012E

book. We, however, maintain our cautious stance on RPWR given the limited visibility on near-

term earnings growth and high degree of execution and fuel risks embedded in the portfolio.

Continued uncertainty over availability of gas on account of slow ramp-up of supply from KG-D6

block makes us skeptical about the prospects on securing gas in the near term for the proposed

9,200 MW of gas-based capacities (including near-term 2,400 MW at Samalkot). Further, we

believe that UMPPs will not be the value driver for RPWR as they have been bid at a relatively

lower tariff structure. Our DCF-based valuation for Sasan and Krishnapatnam implies a P/B of 1X

on the total equity investment for these projects.

Retain SELL with a revised target price of Rs115/share

We maintain our SELL rating on RPWR with a revised target price of Rs115/share (previously

Rs135/share) as we adjust for dilution upon merger with RNRL. Our target price implies a P/B of

1.8X on FY2012E book value. We have revised our EPS estimates for FY2011E to Rs2.9/share

(previously Rs3.9/share) and for FY2012E to Rs4/share (previously Rs5.3/share) as we account for

dilution upon merger with RNRL and delays in commissioning of projects.

Reliance Power (RPWR)Utilities

Expensive despite recent correction. Reliance Power (RPWR) stock has corrected by~35% in the past three months and is now trading at 1.9X FY2012E book. We,

however, maintain our negative stance on account of (1) lack of fuel security for gas-based capacities, (2) dilution of earnings (and valuation) due to merger with RNRL, and

(3) inferior profitability of UMPPs. Operating results in 3QFY11 were ahead of our

estimate on account of better-than-estimated availability. Reiterate SELL.

Reliance Power


52-week range (Rs) (high,low) EPS (Rs) 2.9 4.0 2.5

Market Cap. (Rs bn) 290.7 EPS growth (%) 0.1 38.4 (36.7)

Shareholding pattern (%) P/E (X) 42.5 30.7 48.4

Promoters 84.8 Sales (Rs bn) 11.5 41.9 121.5

FIIs 3.8 Net profits (Rs bn) 8.0 11.1 7.0MFs 0.3 EBITDA (Rs bn) 3.0 15.9 43.7


Absolute (17.5) (33.4) (14.0) ROE (%) 5.2 6.6 4.0

Rel. to BSE-30 (14.8) (25.9) (24.5) Div. Yield (%) 0.0 0.0 0.0


193-106

SELL

FEBRUARY 16, 2010

RESULT

Coverage view: Cautious

Price (Rs): 121


BSE-30: 18,274


12/32

Utilities Reliance Power


Exhibit 1: Operating results beat estimates on better availabilityInterim results for RPWR, March fiscal year-ends (Rs mn)

(% Chg.)

3QFY11 3QFY11E 3QFY10 2QFY11 3QFY11E 3QFY10 2QFY11 FY2010 FY2011E (% Chg.)

Net sales 2,513 2,108 1,687 19 49 207 11,530 5,463

Operating costsCost of fuel (1,242) (1,242) (997) (221) (5,027) 2,175

Personnel costs (196) (193) (121) (153) (245) (1,200) 390

Other expenses (458) (324) (146) (254) (815) (2,286) 181

EBITDA 617 348 (267) 282 77 (331) 119 (1,073) 3,016 (381)

EBITDA margin (%) 25 17 17 (518) 26

Other income 1,038 2,912 1,792 3,437 8,227 8,961

Interest & finance charges (685) (520) (499) (70) (2,219)

Depreciation (77) (400) (2) (375) (57) (798)

PBT 892 2,341 1,523 2,845 (62) (41) (69) 7,026 8,960 28

Provision for tax (net) 544 (445) (186) (497) (187) (949)

Net profit 1,436 1,896 1,336 2,348 (24) 7 (39) 6,839 8,011 17

Extraordinary

EBITDA margin (%) 25 17 17 (518) 26

Tax rate (%) (61) 19 12 17 3 11

Key operating parameters

Units generated (MU) 719 690 545 149 2,989

PLF (%) 55 53 42 69 66

Average realization (Rs/kwh) 3.7 3.3 3.3 1.4 3.9

Cost of fuel (Rs/unit) 1.7 1.8 1.8 1.5 1.7

O&M (Rs/unit) 0.9 0.8 0.7 7.1 1.2


Exhibit 2: Gross value of power projects (Rs bn)Capacity Equity Investment P/B Value Cost of equity

Project Type (MW) (Rs bn) (X) (Rs bn) (%)

Rosa I Coal 600 6.0 1.5 100% 9.2 12.5

Rosa II Coal 600 6.2 -0.2 100% -0.9 12.5

Butibori Coal 600 7.0 5.2 74% 26.7 12.5

Sasan UMPP Coal 3,960 41.0 1.0 100% 42.2 12.5

Krishnapatnam UMPP Imported coal 4,000 48.6 1.0 100% 47.7 12.5

Dadri Gas 6,400 38.4 1.9 100% 74.3 15.0

Chitrangi Coal 3,960 47.5 3.5 100% 166.5 15.0

Total 20,120 1.9 365.6

RPWR's

share


Exhibit 3: Our SOTP-based target price is Rs115/shareValuation of RPWR

Valuation

(Rs bn) (Rs/share)

Gross value of power projects 366 130

Add: Equity to be invested (200) (71)

Add: Cash and cash and cash equivalent 157 56

Net Value 322 115



13/32

Reliance Power Utilities


Status of power projects and captive coal blocks

We highlight below the execution status of key power projects of RPWR as highlighted by

the management.

Rosa II (600 MW) the project has achieved all necessary milestone and construction is inprogress. The project has linkage from CCL (E grade coal). The project is likely tocommission by end-FY2012E.

Butibori (600 MW) the project has achieved all necessary milestone and construction isin progress. The project has linkage from WCL (D grade coal). The project is likely to

commission by June 2012.

Sasan UMPP (3,960 MW) all necessary clearances and approvals in place andconstruction has commenced. Management has indicated that production from Sasan

coal block is likely to commence by 2012. Peak production is likely to be 25 mtpa. A part

of the coal will be used for Chitrangi project. Management has guided for commissioning

of first unit by January 2012.

Krishnapatnam UMPP (3,960 MW) all necessary clearances and approvals in place.RPWR has acquired 3 coal mines in Indonesia for the project. Management has indicated

that production from Indonesian mines will commence by mid-2013 and RPWR will likely

ship in 25 mtpa of Indonesian coal. Indonesian coal will be inferior quality coal (GCV of

4,000 kcal/kg) and boilers for Krishnapatnam UMPP will be designed accordingly.

Management has guided for commissioning of first unit by September 2013.

Tilaiya UMPP (3,960 MW) the project is yet to achieve financial closure. Managementhas indicated that production from Tilaiya coal block will likely commence by 2013. Peak

production from the project will be 40 mtpa, part of which will be used to fuel expansion

at Tilaiya.

Chitrangi (3,960 MW) the project is yet to achieve financial closure and acquire theentire land for the plant. Project will use excess coal from captive coal blocks allocated for

Sasan UMPP. Management has guided for commissioning of first unit by September 2013.

Exhibit 4: Progress on UMPPs have been sedate with both Sasan and Krishnapatnam missing original commissioning guidanceExecution status of near-term projects of RPWR

Capacity

Project (MW)

Rosa II 600 Mar-12

Butibori 600 Jun-12

Sasan 3,960 WIP Jun-13

Krishnapatnam 4,000 WIP Jul-15

Chitrangi 3,960 WIP WIP Jul-14

Tilaya 4,000 WIP Jun-17

EPC

award

Expected

CoDLand Fuel

Enviroment

clearance

Financial

Closure



14/32

Utilities Reliance Power


Exhibit 5: Profit model, balance sheet, cash model of RPWR, March fiscal year-ends, 2009-2013E (Rsmn)

2009 2010 2011E 2012E 2013E

Profit modelNet revenues 207 11,530 41,890 121,541

EBITDA (1,031) (1,073) 3,016 15,918 43,734

Other income 3,604 8,227 8,961 10,125 5,085

Interest (expense)/income (70) (2,219) (5,934) (22,033)

Depreciation (2) (57) (798) (4,770) (14,823)

Pretax profits 2,570 7,026 8,960 15,339 11,963

Tax (119) (187) (310) (1,542) (2,665)

Deferred taxation (639) (2,286) (1,171)

Minority interest 1 (421) (1,103)

Net income 2,445 6,839 8,011 11,090 7,024

Extraordinary items

Reported profit 2,445 6,839 8,011 11,090 7,024

Earnings per share (Rs) 1.1 2.9 2.9 4.0 2.5

Balance sheetPaid-up common stock 23,968 23,968 28,051 28,051 28,051

Total shareholders' equity 137,791 144,630 167,294 178,384 185,408

Deferred taxation liability 689 2,975 4,146

Minority interest 1,679 2,100 3,203

Total borrowings 13,325 22,406 415,223 493,229 535,197

Total liabilities and equity 151,116 167,037 584,885 676,688 727,954

Net fixed assets 2,879 23,408 100,160 238,153 569,471

Capital work-in progress 46,780 68,029 432,280 398,568 126,960

Investments 103,172 79,152

Cash 216 1,338 42,386 22,491 5,341

Net current assets (excl. cash) (1,931) (4,890) 10,059 17,475 26,181

Net current assets (incl. cash) (1,715) (3,552) 52,445 39,966 31,523

Total assets 151,116 167,037 584,885 676,688 727,954

Free cash flowOperating cash flow, excl. working capital 2,447 6,896 9,447 18,567 24,121

Working capital changes (4,065) 2,959 (14,950) (7,416) (8,706)

Capital expenditure (39,351) (41,835) (441,801) (109,051) (74,533)

Free cash flow (40,969) (31,979) (447,303) (97,900) (59,118)

Ratios

Net debt/equity (%) 10 15 221 261 281

Return on equity (%) 1.8 4.8 5.1 6.4 3.9

Book value per share (Rs) 57.5 60.3 59.9 64.7 67.6

ROCE (%) 4.3 2.7 2.5 3.3



15/32


Reasonable revenue growth nullified by higher interest cost and depreciation

IVRCL reported revenues of Rs14.2 bn (up 15% yoy) and EBITDA margins of 9.9% (up 90 bps yoy)

led by lower raw material cost as a percentage of sales. The net profit line disappointed though,

led by higher interest cost of Rs592 mn (vs Rs372 mn last year and Rs480 mn in 2QFY11) and

depreciation cost of Rs199 mn (up 43% yoy) led to flat PAT of Rs423 mn. For 9MFY11, revenues

are Rs36 bn and EBITDA margin at 9.3% are flat yoy with higher interest cost and depreciationincrease leading to decline in PAT of 26%.

Revises full year guidance of Rs62.5 bn; we build in full year revenues of Rs58.2 bn

The management reduced the FY11 revenues guidance to Rs62.5 bn. The present guidance still

implies a strong growth of 35% in the last quarter. We believe this would be difficult to achieve

and have built in FY2011E revenues of Rs58.2 bn, implying yoy revenue growth of 18% in 4QFY11.

Equity for BOTs partly tied upmay scale up execution; IVRCL parent not to invest directly

Present portfolio of IVRCL Assets BOT projects requires incremental equity of about Rs13.5 bn.

Funds up to Rs6.5 bn are already tied up through (1) issue of compulsorily convertible debentures

of Rs2.5 bn to IFCI (2) Rs1.5 bn investment from UTI and (3) Rs2.5 bn NCDs. The rest are to be

funded from the stake sale of existing and upcoming BOT projects, land sales as well as equity

dilution in IVR Prime. IVRCL Infra. as a parent entity is not likely to invest in IVR Prime to fund the

equity of BOT projects.

Revise est. on back of higher interest cost; retain BUY on valuation, visibility and likely pick up

We have revised our FY2011E, FY2012E and FY2013E estimate to Rs7 (Rs7.7 earlier), Rs8.9

(Rs10.3 earlier) and Rs12.6 (Rs15.7) primarily based on higher interest cost versus earlier estimates.

We have revised our target price to Rs125 from Rs190 earlier based on (1) using 10X multiple now

versus 13X earlier, (2) lower valuation of listed subsidiaries (Rs20 impact) and (c) reduction in

earnings estimates. We retain our BUY rating as (1) execution of road projects may pick up as a

part of equity gets tied up, and agreements and financial closures are completed, (2) attractive

valuation 4X FY2012E P/E adjusted for equity holdings in IVR Prime and HDO, (3) order bookvisibility.

IVRCL (IVRC)Construction

Revenue and EBITDA gains nullified by interest cost and depreciation. IVRCLdelivered reasonable revenues growth of 15% yoy in 3QFY11, however, higher interest

cost and depreciation led to flat PAT yoy. The management reduced FY2011 revenueguidance to Rs62.5 bn (may still be aggressive as we build Rs58.2 bn). Debt and

working capital remain stable on a qoq basis, a partial tie up of equity for BOT assets

may help push execution as concession agreement, land, financial closure makeprogress. Retain BUY as stock trades at 4X FY2012E P/E adj. for equity holdings.

IVRCL



Market Cap. (Rs bn) 19.2 EPS growth (%) (11.7) 28.1 40.7

Shareholding pattern (%) P/E (X) 10.3 8.0 5.7

Promoters 9.5 Sales (Rs bn) 58.3 72.7 92.5FIIs 57.7 Net profits (Rs bn) 1.9 2.4 3.4

MFs 7.9 EBITDA (Rs bn) 5.5 6.9 8.8


Absolute (34.5) (48.4) (54.7) ROE (%) 9.6 11.2 13.9



195-60

BUY

FEBRUARY 15, 2011

RESULT

Coverage view: Attractive

Price (Rs): 72


BSE-30: 18,202

QUICK NUMBERS

Revenues at Rs14.2bn up 15% yoy

EBITDA marginsexpands 90 bps yoy

to 9.9%

Net PAT at Rs423mn flat yoy due to

interest cost (up

59% yoy) and

depreciation (up

43% yoy)


16/32

Construction IVRCL


Result disappoint on interest cost and depreciation

IVRCL reported revenues of Rs14.2 bn, up 15% yoy. The company reported EBITDA margin

of 9.9%, up 90 bps yoy (9.0% in 3QFY10) and marginally better than our estimates of 9.5%.

The margin expansion was led by lower raw material cost as a percentage of sales. The

revenue and margin gains resulted in 26% yoy EBITDA growth to Rs1404 mn. IVRCL

disappointed on interest cost and depreciation leading to a net PAT of Rs433 mn, down 1%yoy and 3.3% below our estimate of Rs437 mn. Interest cost increased 59% yoy to Rs592

mn due to the interest rate increase. Depreciation also increased significantly by 43% to

Rs199 mn.

For the nine months ending December 31, 2010, IVRCL reported flat revenues of Rs36 bn

and EBITDA of Rs3.36 bn. As in 3QFY11, the company disappointed on below EBITDA line

items leading to 9MFY11 net PAT contraction of 26% to Rs937 mn.

Revenue and EBITDA margins gains nullified by higher interest cost and depreciationIVRCL - 3QFY11 - key numbers (Rs mn)

3QFY11 3QFY11E 3QFY10 2QFY11 vs est. yoy qoq 9MFY11 9MFY10 % changeNet Sales 14,188 13,199 12,347 10,750 7.5 14.9 32.0 36,002 35,386 1.7

CoGS (11,769) - (10,498) (8,812) 12.1 33.6 (29,703) (30,158) (1.5)

Constrn, stores & spares (5,325) - (4,263) (4,095) 24.9 30.0 (13,026) (13,311) (2.1)

Subcontracting exp. (1,894) - (2,563) (1,684) (26.1) 12.4 (5,479) (7,271) (24.6)

Masonry & labour (4,551) - (3,672) (3,033) 23.9 50.0 (11,198) (9,576) 16.9

Staff cost (604) - (479) (633) 26.1 (4.6) (1,888) (1,299) 45.3

Other expenditure (411) - (256) (352) 60.6 16.9 (1,045) (673) 55.4

Expenditure (12,784) (11,945) (11,233) (9,797) 7.0 13.8 30.5 (32,637) (32,130) 1.6

EBITDA 1,404 1,254 1,115 953 12.0 26.0 47.3 3,365 3,255 3.4

Other income 11 54 39 57 (79.3) (71.2) (80.2) 76 135 (43.5)

PBIDT 1,415 1,308 1,153 1,010 8.2 22.7 40.1 3,442 3,390 1.5

Interest (592) (486) (372) (480) 21.8 59.0 23.2 (1,525) (1,115) 36.8

Depreciation (199) (170) (139) (184)17.2 43.3 7.9

(540) (401)34.7

Profit before tax 625 653 643 345 (4.3) (2.8) 80.9 1,376 1,874 (26.6)

Tax (202) (215) (216) (112) (6.4) (6.6) 79.4 (440) (608) (27.8)

Profit after tax 423 437 427 233 (3.3) (0.9) 81.7 937 1,265 (26.0)

Order book

Order backlog 242,000 - 173,428 240,000 39.5 0.8 - - #DIV/0!

Order booking 16,188 - 41,275 53,450 (60.8) (69.7) - - #DIV/0!

Key ratios (%)

CoGS/Sales 83.0 - 85.0 82.0 82.5 85.2

Staff cost/sales 4.3 - 3.9 5.9 5.2 3.7

Other expenditure/sales 2.9 - 2.1 3.3 2.9 1.9

EBITDA margin 9.9 9.5 9.0 8.9 9.3 9.2

PBT Margin 4.4 4.9 5.2 3.2 3.8 5.3Net Profit margin 3.0 3.3 3.5 2.2 2.6 3.6

Effective tax rate 32.3 33.0 33.6 32.6 31.9 32.5

% change

Source: Company, Kotak Institutional Equities

Road projects execution slow as some projects may be just getting ready forexecution now

The slowdown in execution of the roads segment projects is reflected in the revenue

contribution of this segment (transportation segment) of 12% of the total 9MFY11 revenues

versus a backlog contribution of about 27%. We believe water resources and irrigationsegments have contributed their fair share to the revenues (equal revenue and backlog

contribution) while the buildings segment has recorded a strong revenue contribution of

about 24% versus a backlog contribution of 19%.


17/32

IVRCL Construction


Segment wise break-up of IVRCL's order book and revenues for 1HFY11

9MFY11-end backlog (Rs242 bn)

Electrical

7%

Oil & Gas

1%

Water resources

46%

Buildings and

Industrial

19%

Transportation

27%

9MFY11 revenues (Rs36 bn)

Electrical

4%

Oil & Gas14%

Water resources

46%

Transportation

12%

Buildings and

Industrial

24%

Low r evenue contribution

from roads segment

versus backlog share

Strong buildings segment revenue

contribution versus backlog

contribution of 19%


Recently signed concession agreements for two BOT projects; Goa still remaining

The company has signed concession agreements for two of the three recent BOT project

wins viz. (1) Rs15 bn Sion-Panvel expressway (won in Sept-2010- financial closure likely tohappen soon) and (2) Rs7.5 bn Karanji-Wani-Ghuggus-Chandrapur road (won in Sept-2010

financial closure likely to happen soon). The Rs31 bn Maharashtra-Goa project (won in

June-2010) is still awaiting concession agreement and financial closure.

Sion-Panvel and Karanji-Chadrapur concession agreements signed in 3QFY11Key details of existing and recent BOT project wins of IVRCL

Sion-Panvel

Expressway

Karanji - Wani -

Ghuggus - Chandrapur

Mah/Goa border to

Goa/Kar border

Concession agreement yet to be signed

Project Description

25 kms of a 10-lane

concrete expressway from

Sion to Panvel

4 laning of Karanji - Wani

- Ghuggus - Chandrapur

highway

4/6 laning of 122 km

from Mah/Goa border to

Goa/Kar borderCompany's share 51% 100% 100%

Other partners Kakade Infra. NA NA

Project Type Toll Toll Toll

Concession Period 18 years and 9 months 30 years 23 years

Construction period 2 years 3 years

Grant structure No grant Rs2,318.4 mn VGF

Positive grant of

Rs6,647.2 mn

Project status

Concession agreement

signed, financial closure

expected soon

Concession agreement

signed, financial closure

expected soon

Concession agreement to

be signed

Estimated Funding structure (in Rs mn)

Total project Cost 14,500 7,500 31,000

Equity 3,000 1,295 7,170

Debt 7,600 3,886 6,647

Grant 3,900 2,318 2,318

IVRCL's Equity Commitment 1,530 1,295 7,170



18/32

Construction IVRCL


Construction work has begun on several financially closed BOT projects including Baramati-

Phaltan, Chengapalli- Walayar and Indore-Gujarat.

Key details of completed and financially closed BOT projects of IVRCL

Jallandhar-

Amristar

Salem -

Kumarapalayam

Kumarapalayam

Chenagmpalli

Chennai

Water

Baramati-

Phaltan IOCL-tankage Indore-Gujarat

Chengapalli -

WalayarCompleted/ Financially closed projects

Project Description

4 laning of 49 km

Jallandhar-

Amristar stretch

53 km from Salem

to Kumarapalayam

47 km from

Kumarapalayam to

Chengapalli 100 MLD

4-laning of 78 km

Baramati-Phaltan-

Shirwal

Construction of

12 tanks

155 km Indore

to Gujarat/MP

border

6-lanning of 42

km Chengapalli-

Walayar stretchCompany's share 100% 100% 100% 75% 75% 37.5% 100% 100%

Other partners Befesa NA NA

Project Type Toll Toll Toll

Two part

tariff Toll

Annuity - (Rs350

mn per month) Toll Toll

Concession Period 17.5 years 20 years 20 years 25 years 15 years 27 years 25 years

Construction period 2.5 years 2 years 3 years

Grant structure

Positive grant of

Rs 330 mn

Positive grant of Rs

175 mn

Positive grant of Rs

1290 mn

Positive grant of

Rs1,220 mn No grant

Rs230 mn

revenue share

Rs360 mn

revenue share

Project status Operational Operational Operational Operational

25-27%

construction

completed

65%

construction

completed

Financial closure

achieved

7% construction

completedEstimated Funding structure (in Rs mn)

Total project Cost 3,430 5,020 4,215 5,680 3,820 30,000 15,200 11,250

Equity 671 800 650 1,730 700 2,250 3,800 4,250

Debt 2,365 2,930 3,390 3,950 1,900 2,250 -Sponser 11,400 7,000

Grant 395 1,290 175 1,220 25,500 - Senior

IVRCL's Equity 671 800 650 1,297 525 844 3,800 4,250


Order inflows just keeping pace; current backlog and its execution holds the key

The company reported an order backlog of Rs242 bn at end- 3QFY11 leading to an order

booking of about Rs16 bn in this quarter. The order backlog provides a revenue visibility ofabout 3.4 years based on forward four quarter revenues.

Order book visibility at about three years based on forward four quarter revenuesOrder backlog, booking and visibility (X) of IVRCL Infrastructure, March fiscal year-ends, 2002-3QFY11

-

40

80

120

160

200

240

280

FY02

FY03

FY04

FY05

FY06

FY07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

(Rs bn)

(0.4)

0.2

0.8

1.4

2.0

2.6

3.2

3.8

(years)Order Backlog (LHS) Order Booking (LHS) Visibility (RHS)



19/32

IVRCL Construction


Reduced full-year revenue guidance of Rs62.5 bn requires strong growth in 4Q

The management reduced the FY11 revenues guidance to Rs62.5 bn vs. earlier guidance of

Rs67.5-71 bn. The present guidance still implies 4QFY11 revenue of Rs26.5 bn and a strong

yoy growth of 35.6%. We highlight that the company had booked revenues of Rs18.9 in

4QFY10 which was the strongest quarter in the year.

We have built in revenues of Rs58.2 bn implying 17% yoy growth in 4QFY11E. Our full-year

margin assumption of 9.5% implies an EBITDA margin requirement of 9.8% in 4QFY11E

relatively flat on a yoy basis. Full-year PAT of Rs2 bn implies a net PAT of Rs930 mn in

4QFY11E versus Rs850 mn in 4QFY10.

IVRCL - 4QFY11E - implied key numbers (Rs mn)

9MFY11 9MFY10 % chg. 4QFY11E 4QFY10 % chg. FY2011E FY2010 % chg.

Net Sales 36,002 35,386 1.7 22,262 19,537 13.9 58,265 54,923 6.1

Expenditure (32,637) (32,130) 1.6 (20,092) (17,480) 14.9 (52,730) (49,610) 6.3

EBITDA 3,365 3,255 3.4 2,170 2,058 5.5 5,535 5,313 4.2

Other income 76 135 (43.5) 60 20 202.4 136 155 (12.0)

Interest (1,525) (1,115) 36.8 (625) (523) 19.5 (2,150) (1,639) 31.2Depreciation (540) (401) 34.7 (190) (142) 34.1 (730) (543) 34.5

PBT 1,376 1,874 (26.6) 1,415 1,412 0.2 2,791 3,286 (15.1)

Tax (440) (608) (27.8) (487) (569) (14.4) (927) (1,177) (21.3)

PAT 937 1,265 (26.0) 928 844 10.0 1,864 2,109 (11.6)

Order book

Order booking - - NA NA 98,501 NA 103,556 98,501 5.1

Key ratios (%)

EBITDA margin 9.3 9.2 9.7 10.5 9.5 9.7

PBT margin 3.8 5.3 6.4 7.2 4.8 6.0

Net PAT margin 2.6 3.6 4.2 4.3 3.2 3.8

Effective tax rate 31.9 32.5 34.4 40.3 33.2 35.8


Needs Rs13.5 bn of equity funding for road projects; may sell equity stake in

BOT projects

Present portfolio of IVRCL Assets BOT projects requires incremental equity of about Rs13.5

bn. Delays/difficulties in raising this equity would potentially lead to lower construction

revenues and/or may put stress on the standalone balance sheet. Funds up to Rs6.5 bn are

already tied up through (1) issue of compulsorily convertible debentures of Rs2.5 bn to IFCI

and (2) investment from UTI for about Rs1.5 bn and (3) issue of NCDs for a total of about

Rs2.5 bn. The rest are to be funded from stake sale of existing and upcoming BOT projects,

land sales etc. IVRCL Infrastructure as a parent entity is not envisaged to invest in equity of

BOT projects help in IVR Prime.

Debt and working capital remain stable on a qoq basis

IVRCL management indicated net debt at end-Dec 2010 of about Rs22 bn versus Rs21.2 bn

at end-Sept 2010 and Rs15.5 bn at FY2010-end level. The increase in debt levels was

primarily due to higher loans & advances to subsidiaries for investment in the BOT assets.

Loans and advances towards subsidiaries stood at about Rs4.5 bn versus end-FY2010 level

of about Rs2.8 bn. We have built in debt levels of about Rs23 bn at end-FY2011E.


20/32

Construction IVRCL


Revise earnings estimates and target price to Rs125/share; retain BUY

We have revised our FY2011E, FY2012E and FY2013E estimate to Rs7 (Rs7.7 earlier), Rs8.9

(Rs10.3 earlier) and Rs12.6 (Rs15.7) earlier primarily based on higher interest cost versus

earlier estimates. We have revised our target price to Rs125 from Rs190 earlier based on (1)

using 10X multiple now versus 13X earlier (Rs30 impact on the target price), (2) lower

valuation of listed subsidiaries IVR Prime and Hindustan Dorr Oliver (Rs20 impact on thetarget price) and (3) reduction in earnings estimates (Rs20 impact on the target price).

Revised estimates for IVRCL, March fiscal year-ends, 2011E-12E (Rs mn)

FY2011E FY2012E FY2011E FY2012E FY2011E FY2012E

Revenues 58,265 72,655 58,664 74,642 (0.7) (2.7)

EBIDTA 5,535 6,902 5,573 7,091 (0.7) (2.7)

EBITDA margin (%) 9.5 9.5 9.5 9.5

PAT 1,864 2,389 2,063 2,759 (9.6) (13.4)

EPS (Rs) 7.0 8.9 7.7 10.3 (9.6) (13.4)

yoy growth (%)Revenus 6.1 24.7 6.8 27.2

EBITDA 4.2 24.7 (42.4) (38.0)

PAT (11.7) 28.1 (2.3) 33.7

EPS (11.7) 28.1 (2.3) 33.7

% revisionNew estimates Old estimates

Source: Company estimates, Kotak Institutional Equities estimates

We retain BUY as (1) execution of road projects may pick up as part of equity gets tied up,

and agreements and financial closures are completed, (2) attractive valuation 4X FY2012E

P/E adjusted for equity holdings in IVR Prime and HDO, (3) order book visibility.


21/32

IVRCL Construction


Key order booking and execution segmental assumptions for IVRCL (standalone), March fiscalyearends,2008-13E (Rs mn)

2008 2009 2010 2011E 2012E 2013E

IVRCL Construction

Orders received 87,967 63,229 136,175 103,556 101,252 116,340

Revenues 36,622 48,819 56,000 58,265 72,655 92,542

Growth (%) 59.5 33.3 14.7 4.0 24.7 27.4

Order backlog - year end 122,415 136,825 217,000 262,292 290,889 314,688

Bill to book ratio 31.8 31.7 27.3 21.7 23.2 26.5

Segmental

Water resources and irr igation

Orders received 58,272 44,209 39,937 39,937 39,937 45,927

Growth (%) 181.1 (24.1) (9.7) - - 15.0

Revenues 17,824 25,874 26,000 25,594 32,020 38,306

Growth (%) 52.0 45.2 0.5 (1.6) 25.1 19.6



Transportation

Orders received 440 1,583 53,606 32,164 25,731 29,591

Growth (%) (80.3) 259.9 (40.0) 20 15.0

Revenues 6,933 6,346 7,000 8,635 13,409 23,320

Growth (%) 115.3 (8.5) 10.3 23.4 55.3 73.9



Buildings

Orders received 25,410 12,304 15,933 17,526 20,155 23,178

Growth (%) 445.9 (51.6) 29.5 10.0 15.0 15.0

Revenues 6,935 10,252 11,000 14,661 15,582 17,559

Growth (%) 77.4 47.8 7.3 33.3 6.3 12.7



ElectricalOrders received 3,845 5,132 12,700 11,430 11,430 13,144

Growth (%) (58.8) 33.5 147.5 (10.0) 15.0

Revenues 4,930 6,346 5,000 6,900 8,485 9,816

Growth (%) 20.2 28.7 (21.2) 38.0 23.0 15.7




We correspondingly revise our SOTP-based target price to Rs125/share from Rs190/share.

Our target price of Rs125/share is comprised of (1) Rs90/share from the core construction

business based on 10XFY2012E earnings, (2) IVRCL Assets contribution of Rs26/share, and(3) Rs10/share contribution from Hindustan Dorr Oliver.

We arrive at an SOTP-based target price of Rs125/share for IVRCL

Project/ Business

Valuation

(Rs mn) Rs/ share Valuation methodology

Value of core construction business 24,156 89 # P/E multiple of 10X FY2012E earnings

Value of Hindustan Dorr Oliver 2,697 10 # Discount to market price

Value of IVRCL Prime Developers Ltd 6,921 26 # Discount to market price

Total 125 #



22/32

Construction IVRCL


Profit model and balance sheet of IVRCL, March fiscal year-ends, 2007-13E (Rs mn)

2007 2008 2009 2010E 2011E 2012E 2013E

Income statement

Operating Income 23,059 36,606 48,819 54,923 58,265 72,655 92,542

Operating Expenses (19,497) (30,965) (41,772) (46,281) (49,525) (61,975) (78,938)EBITDA 2,301 3,544 4,145 5,313 5,535 6,902 8,791

Other Income 74 45 299 155 136 148 160

Interest & Finance charges (308) (407) (1,233) (1,637) (2,150) (2,611) (2,913)

Depreciation (216) (328) (473) (543) (730) (863) (1,007)

Profit Before Tax 1,851 2,853 2,738 3,288 2,791 3,576 5,032

Tax expense (436) (749) (478) (1,177) (927) (1,187) (1,671)

PAT 1,415 2,105 2,260 2,111 1,864 2,389 3,361

EPS (Rs) 10.9 15.8 16.9 7.9 7.0 8.9 12.6

Balance sheet

Total share holders funds 13,217 16,060 18,106 18,533 20,276 22,544 25,784

Share Capital 259 267 267 534 534 534 534

Reserves & Surplus 12,918 15,789 17,839 17,999 19,742 22,010 25,250

Loan Funds 5,561 10,678 13,980 16,133 22,883 24,883 27,383

Working Capital Loan 2,864 5,215 7,645 9,103

Long term 1,580 5,159 3,949 3,489 22,542 24,542 27,042

Total Sources of Funds 18,834 26,841 32,203 34,791 43,159 47,427 53,168

Net fixed assets 2,435 3,733 5,403 6,017 6,684 7,321 8,064

Net block 1,929 3,192 5,207 5,664 6,434 7,071 7,814

Capital WIP 506 541 196 353 250 250 250

Investments 2,829 3,409 3,892 6,138 5,910 6,210 6,210

Net Current Assets (excl Cash) 11,332 17,928 21,900 20,992 27,381 30,989 35,139

Cash and Bank Balances 2,238 1,772 1,009 1,644 3,184 2,907 3,755

Total 18,834 26,841 32,203 34,791 43,159 47,427 53,168

Free cash flow

Net cashflow from operating activites (4,340) (3,657) 22 5,213 (1,769) 2,255 3,131

Net PBT 1,851 2,853 2,738 3,288 2,791 3,576 5,032

Add: Depreciation 216 328 473 543 730 863 1,007

Add: Financial Charges 308 407 1,233 1,637 2,150 2,611 2,913

Tax paid (399) (650) (449) (1,162) (1,051) (1,187) (1,671)

Change in wcap. (6,316) (6,596) (3,972) 908 (6,390) (3,608) (4,150)

Cash flow from investing activities (1,407) (2,264) (2,611) (5,087) (1,169) (1,800) (1,750)

Free cash flow (5,747) (5,922) (2,589) 127 (2,938) 455 1,381

Key ratios

EBITDA margin (%) 10.0 9.7 8.5 9.7 9.5 9.5 9.5

PAT margin (%) 6.1 5.7 4.6 3.8 3.2 3.3 3.6

Debt/ equity (X) 0.4 0.7 0.8 0.9 1.1 1.1 1.1

Net debt/ equity (X) 0.3 0.6 0.7 0.8 1.0 1.0 0.9

ROAE (%) 15.7 14.4 13.2 11.5 9.6 11.2 13.9ROACE (%) 10.7 10.4 10.5 9.6 8.5 9.1 10.6

Source: Kotak Institutional Equities


23/32


3QFY11 revenues up 2% qoq, in line with our estimate

Sales at Rs8.7 bn were in line with our estimate with (1) services business (19% of sales)

underperforming, down 14% qoq due to delay in customer approvals in CMO business and delay

in milestone fees and (2) products business of lifecycle ingredients/generics was higher than our

est. by 5% and up 13% yoy with volume growth at 17%, indicating pricing pressure still remains

despite price improvement sequentially.

EBITDA margin at 15% was lower than our estimate of 18% and down 350 bps qoq

EBITDA margin excluding other income was down 350 bps qoq to 15% on account of (1) negative

margin in services business in 3QFY11 versus 2.6% in 9MFY11 due to postponement of milestone

income and (2) lower margin in products business at 22.8% in 3QFY11 versus 23.3% in 9MFY11,

implying that pricing pressure in pyridine and chemicals business still remains. This is despite this

business witnessing (1) 7% qoq increase in sales, (2) sequential improvement in selling pricing and

(3) adequate raw material inventory.

We cut our FY2011-12E est. by 16-30%

We cut our FY2011-12E est. by 16-30% to account for (1) acute margin pressure faced by the

services business. Our analysis shows EBITDA margin in services business excl. high-margin contract

of H1N1 was 10-12% in 9MFY10 which has collapsed to 3% in 9MFY11. We believe steady state

margin of 16-18% outlined by Jubilant is contingent upon healthy revenue generation, which has

not been seen YTD, with DDDS facing sales dip of 20% in 9MFY11 and sequential decline in CMO

business in 3QFY11, (2) poor revenue generation (5% in 9MFY11 excl. one-time H1N1 business)

and (3) increase in interest cost on account of inc. in debt to repay FFCB in May 2011E.

We downgrade to REDUCE from BUY with PT of Rs220 (from Rs350), 13X FY2012E

We believe the key revenue drivers are some time away(1) new launches in APIs, the two major

sartans Jubilant has filed DMF for expire only in 2012E and (2) revenue generation from capacity inpyridines is likely in 2HFY12-13E.

Jubilant Life Sciences (JOL)Pharmaceuticals

Disappointing quarter. While sales were in line, EBITDA margin at 15.4% was down350 bps qoq and below our est. of 18% due to (1) steep margin dip in services business

and (2) sequential decline of around 150 bps in margin of products business (80% ofsales) which is perplexing, given (1) 7% qoq increase in its sales, (2) sequential

improvement in selling pricing and (3) adequate raw material inventory. We cut our

FY2011-12E est. by 16-30% to account for (1) acute margin pressure the business isfacing and (2) poor revenue generation (5% in 9MFY11 excl. one-time H1N1 business

last year) and (3) increase in interest cost on account of FCCB repayment in May 2011E.We downgrade to REDUCE with PT of Rs220 (from Rs350), 13X FY2012E.

Jubilant Life Sciences



Market Cap. (Rs bn) 30.7 EPS growth (%) 49.0 (45.1) 15.9Shareholding pattern (%) P/E (X) 7.3 13.3 11.4

Promoters 47.3 Sales (Rs bn) 37.8 34.5 38.7

FIIs 25.5 Net profits (Rs bn) 4.5 2.6 2.7

MFs 5.9 EBITDA (Rs bn) 8.3 5.8 7.0


Absolute (25.1) (36.4) (39.9) ROE (%) 26.3 11.9 12.1



406-185

REDUCE

FEBRUARY 16, 2011

RESULT, CHANGE IN RECO.

Coverage view: Cautious

Price (Rs): 193


BSE-30: 18,274

QUICK NUMBERS

We downgrade toREDUCE with PT ofRs220 (from Rs350),

13X FY2012E

3QFY11 revenues,up 2% qoq, in line

with our estimate

EBITDA margin at15% was lower

than our estimate

of 18% and down

360 bps qoq


24/32

Pharmaceuticals Jubilant Life Sciences


Interim results- Jubilant, March fiscal year-ends (Rs mn)


Net sales 8,665 8,553 8,650 8,500 1 0 2

Change in stock 107 - (95) NM NM NM

Cost of trading goods sold 729 - 499 NM NM 46

RM consumed 2,681 3,250 3,102 2,778 (18) (14) (4)

Stores, spares 568 513 549 522 11 4 9

Mfg exp 700 684 710 673 2 (1) 4

Staff cost 1,777 1,850 1,790 1,789 (4) (1) (1)

Selling exp 843 684 870 756 23 (3) 11

Exchange loss/(gain) (35) - (570) 7 NM NM NM

Total Expenditure 7,368 6,982 6,450 6,929 6 14 6EBITDA 1,297 1,571 2,200 1,571 (17) (41) (17)

EBITDA, % 15.0 18.4 25.4 18.5 (3) (10) (4)

Other income 42 100 100 73 (58) (58) (43)

Interest 286 300 390 221 (5) (27) 29

Depreciation 493 500 310 488 (1) 59 1

PBT 560 871 1,600 934 (36) (65) (40)

Tax 108 131 200 42 (17) (46) 158

PAT 452 740 1400 892 (39) (68) (49)Minority interest (8) (5) 30 (5) NM NM NM

PAT before exceptional 460 745 1,370 897 (38) (66) (49)Exceptional item (19) - (420) (7) NM NM NM

PAT 441 745 950 891 (41) (54) (50)

Lifescience ingredients 5,820 5,517 5,240 5,470 5 11 6

Generics 1,180 1,121 950 1,100 5 24 7

CMO 1,150 1,391 1,750 1,390 (17) (34) (17)

Drugs discovery & development 490 493 690 510 (1) (29) (4)Hospitals 25 30 20 30 (17) 25 (17)

Total 8,665 8,553 8,650 8,500 1 0 2

% change

Source: Kotak Institutional Equities estimates, Company

Revenue break-up (Rs mn)

9MFY10 9MFY11 % FY2010 FY2011E % FY2012E % FY2013E %

LS Ingredients 15,630 16,600 6 20,813 22,534 8 25,650 14 28,277 10

Generics 2,820 3,270 16 3,820 4,400 15 5,272 20 6,118 16

Products 18,450 19,870 8 24,633 26,934 9 30,922 15 34,394 11

CMO 4,400 3,930 (11) 6,620 5,301 (20) 5,558 5 5,912 6

DDDS 1,930 1,540 (20) 2,490 2,142 (14) 2,048 (4) 2,112 3

Hospitals 60 90 50 80 115 44 140 22 141 1

Services 6,390 5,560 (13) 9,190 7,558 (18) 7,746 2 8,165 5

Total 24,840 25,430 2 33,823 34,492 2 38,667 12 42,560 10

Adjusted growth 24,240 25,430 5 32,075 34,492 8 38,667 12 42,560 10



25/32

Jubilant Life Sciences Pharmaceuticals


Sartans to add to revenues only from 2HFY12E

API Patent expiry Brand name Innovator DMF filed Genericised

Esprosartan 2014 Teveten Abbott Y N

Candesartan Dec-12 Atancand Astrazeneca Y N

Losartan 4QFY11E Hyzaar Merck Y Y

Valsartan Sep-12 Diovan Novartis Y N

Olmesartan 2016 Benicar Daiichi N N

Telmisartan 2014 Micardis Boehringer N N

Irbesartan 2011 Avalide Sanofi N N

Source: US FDA

Debt and interest cost details (Rs mn)

FY2009 FY2010 Sep-10 Dec-10 FY2011E FY2012EFCCB 9,750 8,610 6,390 6,350 6,350 -

Debt in standalone (Rupee) 9,331 6,800 3,990 5,880 6,019 10,354

Debt in standalone (FC) 6,190 4,710 7,750 7,600 7,600 7,600

Debt in Sub (Rupee) 600 510 510 260 260 260

Debt in Sub (FC) 12,910 10,570 10,070 9,700 9,700 9,700

Gross debt 38,781 31,200 28,710 29,790 29,929 27,914Cash 6,530 7,601 1,410 980 1,690 500

Net debt 32,251 23,599 27,300 28,810 28,238 27,414

Net debt/Equity 2.5 1.1 1.2 1.4 1.3 1.2

Interest cost calculationInterest bearing debt (Rupee) 9,931 7,310 4,500 6,140 6,279 10,614

Interest bearing debt (FC) 19,100 15,280 17,820 17,300 17,300 17,300

Total interest bearing debt 29,031 22,590 22,320 23,440 23,579 27,914Average interest rate (Rupee) 10.6% 8.9% 9.0% 8.9% 10.0%Average interest rate (FC) 3.8% 4.2% 4.2% 4.2% 4.5%

Interest cost 1,558 1,292 1,626Interest cost in P&L 1,505 1,028 1,600

Interest cost (%) 5.8% 4.9% 5.0% 4.4% 6.2%



26/32

Pharmaceuticals Jubilant Life Sciences


Profit and loss statement, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013ENet sales 24,889 35,175 37,812 34,492 38,667 42,560Operating expenses

Materials (13,834) (18,461) (20,024) (15,713) (16,578) (17,927)Selling and administration (1,458) (1,805) (3,520) (5,979) (6,907) (7,180)

Employee cost (3,670) (6,575) (7,453) (7,254) (8,342) (9,594)

R&D (228) (285)

Others (1,420) (3,629) 1,070 50

Total expenditure (20,382) (30,469) (29,926) (28,897) (31,827) (34,701)EBITDA 4,507 4,706 7,886 5,595 6,840 7,858Depreciation and amortisation (1,039) (1,632) (1,247) (1,970) (2,200) (2,400)

EBIT 3,468 3,074 6,639 3,625 4,640 5,458Net finance cost (337) (1,070) (1,505) (1,028) (1,600) (1,800)

Other income 1,430 425 373 226 200 200

Pretax profits before extra-ordinaries 4,561 2,428 5,507 2,824 3,240 3,858Current tax (557) (623) (957) (299) (583) (695)

Deferred tax 12 127

Fringe benefit tax (28) (28) Reported net profit 3,988 1,904 4,550 2,525 2,657 3,164Minority interests 16 133 (5) 29 32 35

Reported net profit after minority inter 4,005 2,037 4,545 2,553 2,688 3,199Exceptional items 790 (331) (233)

PAT after minority interests and excep. 4,005 2,827 4,214 2,320 2,688 3,199


Balance sheet statement, March fiscal year-ends, 2008-2013E (Rs mn)

2008 2009 2010 2011E 2012E 2013EBalance sheetNet worth 12,563 12,675 21,893 21,171 23,393 25,940

Debt 21,085 38,781 31,200 29,929 27,914 27,520


Deferred tax liabilities 1,516 1,470 2,303 2,275 2,243 2,208

Total equity and liabilities 41,842 64,870 68,124 64,250 63,703 66,704Cash and cash equivalents 5,238 3,817 5,037 1,000 500 500

Current assets 12,160 15,855 17,278 17,581 16,924 18,825

Net assets incl CWIP 23,988 42,484 43,245 44,979 46,279 47,379

Investments 456 2,714 2,564 690

Total uses of funds 41,842 64,870 68,124 64,250 63,703 66,704

Free cash flowOperating cash flow, excl. working 5,247 4,218 7,041 5,413 6,169 7,040

Working capital (1,895) 1,553 (752) (2,157) (160) (1,205)

Capital expenditure (7,241) (7,383) (2,011) (3,704) (3,500) (3,500)

Investments (418) (2,257) 149 1,874 690

Free cash flow (4,306) (3,868) 4,427 1,426 3,199 2,335



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Disclosures

Kotak Institutional Equities Research coverage universeDistribution of ratings/investment banking relationships

Source: Kotak Institutional Equities As of September 30, 2010

* The above categories are defined as follows: Buy = We expect

this stock to outperform the BSE Sensex by 10% over the next 12

months; Add = We expect this stock to outperform the BSE

Sensex by 0-10% over the next 12 months; Reduce = We expect

this stock to underperform the BSE Sensex by 0-10% over the

next 12 months; Sell = We expect this stock to underperform the

BSE Sensex by more then 10% over the next 12 months. These

ratings are used illustratively to comply with applicable

regulations. As of 30/09/2010 Kotak Institutional EquitiesInvestment Research had investment ratings on 156 equity

securities.

Percentage of companies covered by Kotak Institutional Equities,

within the specified category.

Percentage of companies within each category for which Kotak

Institutional Equities and or its affiliates has provided investment

banking services within the previous 12 months.

11.5%

23.1%

32.1% 33.3%

3.2%

5.1% 5.1%

0.6%

0%

10%

20%

30%

40%

50%

60%

70%

BUY ADD REDUCE SELL

Ratings and other definitions/identifiers

Definitions of ratings

BUY. We expect this stock to outperform the BSE Sensex by 10% over the next 12 months.

ADD.We expect this stock to outperform the BSE Sensex by 0-10% over the next 12 months.

REDUCE. We expect this stock to underperform the BSE Sensex by 0-10% over the next 12 months.

SELL. We expect this stock to underperform the BSE Sensex by more than 10% over the next 12 months.

Our target price are also on 12-month horizon basis.

Other definitions

Coverage view. The coverage view represents each analysts overall fundamental outlook on the Sector. The coverage view will consist of one of the following

designations: Attractive, Neutral, Cautious.

Other ratings/identifiers

NR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is in compliance with applicable

regulation(s) and/or Kotak Securities policies in circumstances when Kotak Securities or its affiliates is acting in an advisory capacity in a merger or strategic

transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Kotak Securities has suspended coverage of this company.

NC = Not Covered. Kotak Securities does not cover this company.

RS = Rating Suspended. Kotak Securities Research has suspended the investment rating and price target, if any, for this stock, because there is not a sufficient

fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock

and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.


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Tata Steel Future Projections

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