This thread is for Tata Steel Long Products –
Business -
Special Steel: It is used for high-end and critical applications such as forging, bearings, fasteners, spring etc. which are used primarily by the Automotive sector but also in other areas such as construction, capital goods, etc.
Production Volume
In FY22, the company produced ~839,000 tonnes of Direct reduced Iron (DRI), ~684,000 tonnes of Crude Steel and ~672,000 tonnes of rolled products.
Manufacturing Capabilities
The company owns and operates a steel plant in Jamshedpur (Jharkhand) and a sponge Iron Plant in Keonjhar (Odisha).
Its capabilities include :-
Crude steel capacity: 1 MnTPA
DRI: 1 MnTPA
Iron ore mines: 2.5 MnTPA ROM[7]
Captive Power capacity: 160 MW[8]
Acquisitions -
The Co is acquiring a 93.7% stake in NINL for a consideration of 12,100 crores.- To fund the acquisition, the Co has raised 12,700 cr by allotting Non-Convertible Redeemable Preference Shares to Tata Steel.
The NCDs will have a face value of Rs.100 and will be redeemable at the end of 20 years at a price of Rs.574.63 - effective yield works out to approximate 9.1% compounded p.a.
The Co acquired the steel business of Usha Martin Ltd. situated in Jamshedpur, Jharkhand on a debt-free, cash-free and nil net working capital basis in April 2019 for a total purchase consideration of ~4,500 crores. The acquisition marked the company’s entry into speciality steel from a sponge iron and power producer.
Rights Issue
In July 2019, the company allotted ~3 crore equity shares of the company at a price of 500 per share to the eligible equity holders. It raised ~1,500 crores through rights issue which was primarily used towards acquisition of steel business of Usha Martin.[20] The shareholding of Tata Steel Ltd increased from ~55% to ~76% in the company post the rights issue.[21]
The rating also factors in the greater visibility towards recovery of invested capital for the Radhikapur (East) coal block following the successful reauctioning of the block to a new bidder for commercial coal mining.
2023 results -
Notwithstanding the same, a disproportionately steep increase in input prices (mainly coking/ thermal coal, freight, and regulatory charges) severely dented its profit margin in FY2023. On a consolidated basis, TSLPL posted operating losses in FY2023 that can be attributed to the large one-time start-up costs incurred to restart the operations at the recently acquired NINL, which was closed for almost two years prior to the acquisition. ICRA has noted the uptick in earnings reported
by TSLPL’s standalone business in Q4 FY2023 amid softening of raw material prices and reduction in losses at NINL, having demonstrated ramping up to its rated capacity levels in March 2023, which in ICRA’s view will support an improved operating and financial performance in the coming quarters
Outlook -
Besides, TSLPL has plans to scale up NINL’s capacity to around 5 mtpa over the next few years and further to 10 mtpa by 2030. While funding risks for the future expansion plans will be largely mitigated by the parent’s stated intent of financial support, the company would remain exposed to project execution risks, given the large-sized expansion plans.
TSLPL’s around 1-million tonne-per-annum (mtpa) acquired steel business of Usha Martin comprises integrated upstream and downstream facilities such as sinter, pellet, sponge iron kiln, blast furnace, electric arc furnace, wire rod/ bar/bloom mills, captive power plants, and a captive iron ore mine (which meets a significant portion of the iron ore requirements at Gamharia). The recently acquired NINL unit comprises upstream and downstream facilities such as blast furnace, sinter, coke oven, steel melting shop, power plant and a captive iron ore mine having reserves of around 100 million tonnes.
Increasing share of value-added products supported higher realisations – Following the takeover of the around 1-mtpa alloy steel plant of Usha Martin, TSLPL has focused on new product development and product mix enrichment with the aim of increasing margins and partly insulating the company’
Greater visibility towards recovery of invested capital for the Radhikapur (East) coal block following successful reauctioning of the block to a new bidder for commercial coal mining –
Risks -
Exposure to sectoral concentration risks – Historically, around 50% of TSLPL’s deliveries has been directed to the automobile sector, which exposes the company to the sectoral concentration risks
Steep increase in input costs and large losses at NINL severely dented earnings in the last fiscal; earnings exposed to volatility in steel prices/ input costs and exchange rate fluctuations
Sub-optimal capacity utilisation level at the pellet plant and steel melting shop at Gamharia – ICRA notes that TSLPL has not been able to ramp up to the full rated capacity at the 1.2-mtpa pellet plant and the 1-mtpa crude steel making capacity at Gamharia. It has been observed that the peak demonstrated capacity utilisation of the pellet plant is around 60-65%, and that for the crude steel making capacity is around 70%
Changes in MMDR Act and additional regulatory charges lead to a structural drag on profits – TSLPL procures a part of its iron ore requirements from the captive mines of TSL. Consequent to the amendment in the MMDR Act effective March 28, 2021, TSL recovers an additional amount of 150% of the royalty paid on iron ore fines and 250% on iron ore lumps sourced by TSLPL. Going forward, this additional regulatory charge will remain a structural drag on the profits of TSLP
Large-sized expansion plan in pipeline; will remain exposed to project execution risks – After stabilising the acquired steel business of Usha Martin, TSLPL has embarked upon the next phase of expansion with the acquisition of NINL. With NINL ramping up to its rated capacity level in March 2023, the company has plans to scale up NINL’s capacity to around 5 mtpa over the next few years and further to 10 mtpa by 2030.
Merger of seven subsidiaries with Tata Steel to be completed by FY24, says CEO Narendran
Read more at:
Key points –
- Strong Parentage support from TSL (74.91% subsidiary of TSL)
- Acquired NINL through TSL support (NCDs) - currently 1 MTPA, expansions upto 10 MTPA . NINL restarted after 2 years - incurred Capex this year - has 100 MT reserves.
- Acquired Usha Martin through equity rights issue @ 500 per share (by rights issue)
- Both the above acquisitions have upside & downside integration plants
- Suboptimal utilization of plants 65% - 70%
- Merger in progress into TSL
2023 - debt is 14,757 /- actual debt is 1500 Cr. remaining part is the liability component of NCDs payable to TSL at end of 20 years @ 9.2 pa interest.
below are the financials -
| Mar-13 | Mar-14 | Mar-15 | Mar-16 | Mar-17 | Mar-18 | Mar-19 | Mar-20 | Mar-21 | Mar-23 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Sales | 795.74 | 777.24 | 789.57 | 573.51 | 557.31 | 800.17 | 992.05 | 3489.99 | 4749.87 | 8991.78 |
| Sales growth % | -2% | 2% | -27% | -3% | 44% | 24% | 252% | 36% | 89% | |
| OPM% | 15% | 19% | 13% | 4% | 11% | 23% | 15% | 4% | 23% | -8% |
| Other Income | 31.55 | 35.44 | 55.55 | 37.36 | 37 | 43.03 | 57.73 | -81.89 | 68.69 | 302.43 |
| Interest | 7.91 | 13.22 | 5.31 | 5.38 | 2.44 | 3.25 | 3.02 | 292.84 | 234.63 | 1387.44 |
| Depreciation | 17.88 | 17.75 | 12.94 | 12.89 | 12.76 | 12.3 | 11.58 | 310.79 | 327.19 | 715.77 |
| Profit before tax | 125.83 | 149.82 | 136.52 | 43.4 | 83.51 | 210.21 | 187.82 | -530.19 | 614.87 | -2538.03 |
| Tax% | 32.2% | 32.5% | 32.7% | 26.4% | 29.6% | 33.0% | 33.8% | 2.6% | 7.0% | 9.2% |
| Net Profit after tax | 85.35 | 101.2 | 91.94 | 31.94 | 58.78 | 140.88 | 124.39 | -516.23 | 572.01 | -2303.85 |
| NPM% | 10.7% | 13.0% | 11.6% | 5.6% | 10.5% | 17.6% | 12.5% | -14.8% | 12.0% | -25.6% |
| Asset Turnover | 4.92 | 4.98 | 5.30 | 3.68 | 3.50 | 5.27 | 5.37 | 1.44 | 1.06 | 0.86 |
| Receivable days | 9 | 11 | 8 | 12 | 21 | 22 | 25 | 12 | 9 | 5 |
| Inventory Turnover | 13.6 | 12.9 | 9.3 | 8.1 | 13.7 | 12.0 | 10.0 | 7.7 | 5.9 | 5.7 |
| Working Capital cycle days | 50 | 59 | 69 | 58 | 68 | 74 | 74 | 114 | 94 | |
| Total Debt (D) | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2754.95 | 1424.22 | 14757.45 |
| Total Equity | 639.4 | 722.58 | 795.17 | 826.05 | 864.92 | 986.53 | 1083.63 | 2016.81 | 2594.13 | 958.2 |
| Assets | 814.77 | 929.28 | 972.91 | 987.45 | 1045.9 | 1214.36 | 1324.45 | 6176.63 | 5908.72 | 22225.47 |
| D/E | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 1.4 | 0.5 | 15.4 |
| CFO | 111.94 | 100.52 | -16.21 | 77.06 | 21.65 | 41.08 | 100.25 | -335.66 | 1689.72 | -1615.53 |
| CFI | -89.5 | -89.36 | 16.29 | -58.41 | 51.39 | -213.05 | -12.43 | -3574.41 | 91.07 | -2944.25 |
| CFF | -13.21 | -12.19 | -18.09 | -18.33 | -18.45 | -20.19 | -37.13 | 3804.89 | -1559.42 | 136.96 |
| Net Cash Flow (CFO+CFI+CFF) | 9.23 | -1.03 | -18.01 | 0.32 | 54.59 | -192.16 | 50.69 | -105.18 | 221.37 | -4422.82 |
| PBT/Avg.NFA (<10%, >25%) | 77.8% | 96.1% | 91.7% | 27.9% | 52.5% | 138.4% | 101.7% | -21.9% | 13.7% | -24.4% |
| RoE on Avg Equity (<7%, >25%) | 13.3% | 14.9% | 12.1% | 3.9% | 7.0% | 15.2% | 12.0% | -33.3% | 24.8% | -129.7% |
| ROCE (EBIT on Avg CE/Total Assets) | 16.4% | 18.7% | 14.9% | 5.0% | 8.5% | 18.9% | 15.0% | -6.3% | 14.1% | -8.2% |
| Dividend Paid without DDT | 12.32 | 15.4 | 15.4 | 15.4 | 16.94 | 30.8 | 19.25 | 0 | 22.55 | 0 |
| Dividend Payout (Div/PAT) | 14% | 15% | 17% | 48% | 29% | 22% | 15% | 0% | 4% | 0% |
Disclosure - Added to watchlist. waiting for the Merger details with TSL.