MOSL: TATA STEEL-Annual report 2017-EBITDA growth was offset by WC in FY17-Ind-AS revaluation depresses return ratios
​tata steel: Annual report: EBITDA growth was offset by WC in FY17; Ind-AS revaluation depresses return ratios, net-debt- to-EBITDA
(tata IN, Mkt Cap USD8.6b, CMP INR571, TP INR583, 2% Upside, Neutral)
Analysis of Tata Steel’s (TATA) FY17 is of particular significance because of Ind-AS introduction. Comparison of re-stated FY16 Ind-AS financials with previously reported IGAAP brings out many insights.
- ​Standalone EBITDA for FY16 is boosted by INR3.4b, as long-term power supply arrangement is now finance lease, which has increased debt by INR16.9b.
- EPCG benefits are now deferred income; this has increased gross block (hence depreciation) and non-cash EBITDA (INR3.4b in FY17).
- TSE-LP disposal: Ind-AS FY16 financials have excluded disposed assets, which contributed loss of INR1.8b to EBITDA. TATA received negative consideration of INR19.6b, which was over and above INR4b net working capital.
- TSE turnaround is largely attributable to reduction in repair & maintenance, GBP depreciation, and some expansion in spreads in FY17.
- Accounting of JVs on equity method has reduced net debt by INR54b and EBITDA by just INR2b, thereby benefitting EV/EBITDA.
- Book value is inflated by INR132/share to INR425/share on fair valuation of assets and goodwill is trimmed by INR100/share to INR42/share in FY16.
- All the return ratios (RoE, RoCE, RoIC, asset turn) have declined under Ind-AS. Net-debt-to-equity declined sharply. On the other hand, EBITDA margin has improved under Ind-AS for TATA.
Tata Steel is primarily engaged in the manufacturing of steel and its related products. Through its joint ventures, Co. is also engaged in iron ore and coal exploration and mining activities. Co.'s products include hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rebars and bearings. Co.'s products are sold under the following brand names: Tata Steelium, Tata Shaktee, Tata Tiscon, Tata Bearings, Tata Agrico, Tata Wiron, Tata Pipes and Tata Structura. Apart from these product brands, Co. also has in its folds a service brand called "steeljunction".
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