Tata Steel Net Income jumped on 417% and EBITDA Margin increased on 2.0 pp from 14.6% to 16.6%

16-05-2018 • About Tata Steel ($TATASTEEL) • By InTwits

Tata Steel reported FY2018 financial results today. Here are the key drivers of the company's long term financial model:

Tata Steel has medium CAPEX intensity: 5 year average CAPEX/Revenue was 8.6%. At the same time it's a lot of higher than industry average of 6.9%.
CAPEX is quite volatile: ₹74,785m in FY2018, ₹77,156m in FY2017, ₹101,634m in FY2016, ₹134,924m in FY2015, ₹164,201m in FY2014
The company has business model with average profitability: ROIC is 10.7%

Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.

Revenue and profitability

The company's Revenue jumped on 12.9%. During FY2014-FY2018 Revenue growth bottomed in FY2016 at -23.6% and was accelerating since that time. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 2.0 pp from 14.6% to 16.6% in FY2018. During FY2014-FY2018 EBITDA Margin bottomed in FY2016 at 7.6% and was growing since that time.

Net Income margin jumped on 13.8 pp from -3.6% to 10.2% in FY2018.

Investments (CAPEX, working capital and M&A)

The company's CAPEX/Revenue was 5.7% in FY2018. Tata Steel's CAPEX/Revenue decreased on 4.1 pp from 9.8% in FY2015 to 5.7% in FY2018. It's average level of CAPEX/Revenue for the last three years was 7.3%. CAPEX as a % of Revenue stuck to a declining trend at -1.4 pp per annum in FY2014-FY2018.

Return on investment

The company operates at good ROE (26.9%) while ROIC is low (10.7%). ROIC increased on 2.3 pp from 8.4% to 10.7% in FY2018. ROE jumped on 37.7 pp from -10.8% to 26.9% in FY2018. During the last 5 years ROIC bottomed in FY2016 at 2.1% and was growing since that time.

Leverage (Debt)

Company's Net Debt / EBITDA is 3.8x and Debt / EBITDA is 4.2x. Net Debt / EBITDA dropped on 0.7x from 4.6x to 3.8x in FY2018. Debt jumped on 11.0% while cash jumped on 61.3%. During the last 5 years Net Debt/EBITDA topped in FY2016 at 9.4x and was declining since that time.

Tata Steel has short term refinancing risk: cash is only 41.0% of short term debt.

Financial and operational results

FY ended 31-03-2018

Tata Steel ($TATASTEEL) key annual financial indicators

mln. INR	2014	2015	2016	2017	2018	2018/2017
P&L
Revenue	1,473,473	1,383,189	1,056,832	1,166,826	1,317,415	12.9%
EBITDA	164,110	125,358	80,461	170,247	218,905	28.6%
Net Income	35,949	-39,255	-3,828	-42,408	134,343
Balance Sheet
Cash	86,045	87,499	61,863	49,211	79,379	61.3%
Short Term Debt	292,422	150,261	171,142	189,922	193,580	1.9%
Long Term Debt	523,664	656,752	648,728	640,223	727,891	13.7%
Cash flow
Capex	164,201	134,924	101,634	77,156	74,785	-3.1%
Ratios
Revenue growth	10.4%	-6.1%	-23.6%	10.4%	12.9%
EBITDA growth	33.2%	-23.6%	-35.8%	111.6%	28.6%

EBITDA Margin	11.1%	9.1%	7.6%	14.6%	16.6%	2.0%
Net Income Margin	2.4%	-2.8%	-0.4%	-3.6%	10.2%	13.8%
CAPEX, % of revenue	11.1%	9.8%	9.6%	6.6%	5.7%	-0.9%

ROIC	8.9%	5.4%	2.1%	8.4%	10.7%	2.3%
ROE	9.6%	-11.4%	-1.5%	-10.8%	26.9%	37.7%
Net Debt/EBITDA	4.4x	5.7x	9.4x	4.6x	3.8x	-0.7x

Peers in Iron & Steel/Interm.Products

Below we provide Tata Steel benchmarking against other companies in Iron & Steel/Interm.Products industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %


Top	FY2014	FY2015	FY2016	FY2017	FY2018
Steel Authority Of India ($SAIL)	4.5%	-1.9%	-15.4%	14.0%	-
Median (1 company)	3.4%	-0.4%	-13.0%	14.0%	-
Tata Steel ($TATASTEEL)	-	-6.1%	-23.6%	10.4%	12.9%

Top companies by EBITDA margin, %


Top	FY2014	FY2015	FY2016	FY2017	FY2018
Steel Authority Of India ($SAIL)	9.0%	10.6%	-7.5%	0.2%	-
Median (1 company)	7.0%	7.2%	8.1%	0.2%	-
Tata Steel ($TATASTEEL)	11.1%	9.1%	7.6%	14.6%	16.6%

Top companies by CAPEX/Revenue, %


Top	FY2014	FY2015	FY2016	FY2017	FY2018
Steel Authority Of India ($SAIL)	19.3%	16.9%	17.3%	12.4%	-
Median (1 company)	7.7%	4.9%	5.9%	12.4%	-
Tata Steel ($TATASTEEL)	11.1%	9.8%	9.6%	6.6%	5.7%

Top companies by ROIC, %


Top	FY2014	FY2015	FY2016	FY2017	FY2018
Steel Authority Of India ($SAIL)	3.6%	3.9%	-7.1%	-3.6%	-
Median (1 company)	5.5%	4.5%	3.5%	-3.6%	-
Tata Steel ($TATASTEEL)	8.9%	5.4%	2.1%	8.4%	10.7%

Top companies by Net Debt / EBITDA


Top	FY2014	FY2015	FY2016	FY2017	FY2018
Steel Authority Of India ($SAIL)	6.1x	6.5x	-	576.7x	-
Median (1 company)	3.4x	1.7x	0.9x	576.7x	-
Tata Steel ($TATASTEEL)	4.4x	5.7x	9.4x	4.6x	3.8x

Tata Steel stock price chart

Tata Steel financials

mln.	FY2010	FY2011	FY2012

Revenue	1,017,578	1,171,498	1,322,574
EBITDA	80,427	159,956	124,168
Net income	-20,092.200	89,827	53,898
CAPEX	71,495	95,884	120,777
Debt	531,004	606,788	598,968
Cash	68,151	108,591	107,988

About Tata Steel

Tata Steel Limited manufactures and sells steel and steel products in India and internationally. It operates through Steel, Ferro Alloys and Minerals, and Others segments. The company offers steel products to vehicle manufacturers and component suppliers, and aerospace sector; structural frames, infrastructure, building envelope, and internal fit out application products used for heating and ventilation, partition walls, etc.; and hot rolled coil products and high-gloss pre-finished steel perforated blanks primarily for use in domestic appliances, furniture and office equipment, racking and shelving, battery cases, bake-ware, and lighting applications. It also provides hot rolled and cold rolled sheets, wire rod and wire, sections, plates, bearings, and tubes for engineering companies; agricultural implements; wire products for farming and fencing applications; and engineering services. In addition, the company offers tinplate, ECCS, and Protact polymer-coated steel products for can making industry; formable steels for steel drums, and pails in the industrial packaging sector; strips and coils, quenched and tempered plates, and special profiles for track shoe and forklift masts, as well as engineered steel bars and tubes for lifting and excavating sector; welded pipeline packages and prefabricated structural products for wind, and oil and gas structures; light fabricated systems for solar farm foundations; and semi finished steel components for drilling and power generation. Further, it provides plates, bulb flats, angles, tubes, sections, and bars for shipbuilding; rail sections size, steel sleeper, noise reduction, other specialized track, and rail products for rail sector; and steel plate and sections, armored steel, blast protective structures, perimeter security, and anti-attack vehicle barriers, as well as engineering consultancy and solutions for defense and security sector. The company was founded in 1907 and is headquartered in Mumbai, India.