Tata Steel reports 23.6% EBITDA decline and 2.1 pp EBITDA Margin decline from 11.1% to 9.1%

20 May 2015 • About Tata Steel ($TTST) • By InTwits

Tata Steel reported FY2015 financial results today. Overall the company's long term financial model is characterised by the following facts:

Tata Steel has medium CAPEX intensity: 5 year average CAPEX/Revenue was 10.0%. At the same time it's a lot of higher than industry average of 25.9%.
CAPEX is quite volatile: 138 in FY2015, 225 in FY2014, 424 in FY2013, 343 in FY2012, 211 in FY2011
The company has potentially unprofitable business model: ROIC is at 5.4%
It operates with medium-size leverage: Net Debt/EBITDA is 5.7x while industry average is 5.9x

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

Tata Steel ($TTST) key annual financial indicators

mln. INR	2011	2012	2013	2014	2015	2015/2014
P&L
Revenue	1,171,498	1,322,574	1,334,166	1,473,473	1,383,189	-6.1%
EBITDA	159,956	124,168	123,212	164,110	125,358	-23.6%
Net Income	89,827	53,898	-70,576	35,949	-39,255	-209.2%
Balance Sheet
Cash	108,591	107,988	98,339	86,045	87,499	1.7%
Short Term Debt	114,281	146,585	216,497	292,422	150,261	-48.6%
Long Term Debt	492,507	452,382	468,576	523,664	656,752	25.4%
Cash flow
Capex	95,884	120,777	154,715	164,201	134,924	-17.8%
Ratios
Revenue growth	15.1%	12.9%	0.9%	10.4%	-6.1%
EBITDA growth	98.9%	-22.4%	-0.8%	33.2%	-23.6%
EBITDA Margin	13.7%	9.4%	9.2%	11.1%	9.1%	-2.1%
Net Income Margin	7.7%	4.1%	-5.3%	2.4%	-2.8%	-5.3%
CAPEX, % of revenue	8.2%	9.1%	11.6%	11.1%	9.8%	-1.4%
ROIC	12.8%	7.6%	6.2%	8.9%	5.4%	-3.6%
ROE	30.8%	13.8%	-18.4%	9.6%	-11.4%	-21.0%
Net Debt/EBITDA	3.1x	4.0x	4.8x	4.4x	5.7x	1.3x

Revenue and profitability

The company's Revenue decreased on 6.1% in FY2015. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin jumped on 23.9 pp from -132% to -108% in FY2015.

Net Income marign decreased on 5.3 pp from 2.4% to -2.8% in FY2015.

Capital expenditures (CAPEX) and working capital investments

In FY2015 the company had CAPEX/Revenue of 9.8%. Tata Steel's CAPEX/Revenue increased slightly on 0.62 pp from 9.1% in FY2012 to 9.8% in FY2015. For the last three years the average CAPEX/Revenue was 10.8%.The company has spent a lot to CAPEX (108% of EBITDA) which didn't stop revenue from falling.

Return on investment

The company operates at low but positive ROIC (5.36%) and negative ROE (-11.41%). ROIC decreased on 3.6 pp from 8.9% to 5.4% in FY2015. ROE dropped on 21.0 pp from 9.6% to -11.4% in FY2015.

Leverage (Debt)

Company's Net Debt / EBITDA is 5.7x and Debt / EBITDA is 6.4x. Net Debt / EBITDA surged on 1.3x from 4.4x to 5.7x in FY2015. Debt decreased slightly on 1.1% in FY2015 while cash increased slightly on 1.7% in FY2015.

Appendix 1: 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	FY2011	FY2012	FY2013	FY2014	FY2015
Steel Authority Of India ($SAUD)	5.6%	7.4%	-3.3%	4.5%
Median (1 company)	5.6%	7.4%	-3.3%	4.5%
Tata Steel ($TTST)		12.9%	0.9%	10.4%	-6.1%

Top companies by EBITDA margin, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Steel Authority Of India ($SAUD)	18.3%	13.9%	11.2%	9.0%
Median (1 company)	18.3%	13.9%	11.2%	9.0%
Tata Steel ($TTST)	13.7%	9.4%	9.2%	11.1%	9.1%

Top companies by CAPEX/Revenue, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Steel Authority Of India ($SAUD)	25.3%	20.9%	20.7%	19.3%
Median (1 company)	25.3%	20.9%	20.7%	19.3%
Tata Steel ($TTST)	8.2%	9.1%	11.6%	11.1%	9.8%

Top companies by ROIC, %


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Steel Authority Of India ($SAUD)	11.0%	7.9%	5.5%	3.6%
Median (1 company)	11.0%	7.9%	5.5%	3.6%
Tata Steel ($TTST)	12.8%	7.6%	6.2%	8.9%	5.4%

Top companies by Net Debt / EBITDA


Top	FY2011	FY2012	FY2013	FY2014	FY2015
Steel Authority Of India ($SAUD)	2.5x	2.6x	4.4x	6.1x
Median (1 company)	2.5x	2.6x	4.4x	6.1x
Tata Steel ($TTST)	3.1x	4.0x	4.8x	4.4x	5.7x

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.