MOSL: TATA STEEL (Neutral)-Site visit to Jamshedpur and Kalinganagar-A benchmark in operational excellence

​TATA STEEL: Site visit to Jamshedpur and Kalinganagar; A benchmark in operational excellence, sustainability and CSR

(TATA IN, Mkt Cap USD10.4b, CMP INR679, TP INR665, 5% Downside, Neutral)

We visited Tata Steel's (TATA) flagship, highly profitable 10mtpa steel plant at Jamshedpur, Jharkhand (JSR), recently commissioned new greenfield 3mtpa steel plant at Kalinganagar, Odisha (KPO) and also met top management during 3-6 October 2017. Key takeaways:

• After plugging the cash leakage at Tata Steel Europe (TSE), TATA is now looking to double its capacity to 26mtpa in India through both organic and inorganic routes.
  
• TATA has a lion's share in the most lucrative auto segment at 44%. Autos comprised 19% of its product mix in FY17. The new hot strip mill (HSM) at KPO can produce all sizes, grade in tight tolerances, which are required by the highly demanding auto customers.
  
• TATA has continuously worked to create various brands and retail supply chain. Branded products now comprise of 50% of JSR's revenue.
  
• JSR has 10mtpa capacity in a compact area of 1,700 acres. The blast furnaces operate at high operating efficiencies and at the lowest coke rate of 320kg. It has state-of-the-art downstream facilities to produce 2.3mtpa products. JSR is expected to increase steel production by 1mt over three years through debottlenecking.
  
• KPO's phase-I with 3mtpa capacity was commissioned in FY17. KPO's area is twice that of JSR, and it has created infrastructure for 6mtpa. There will be material savings in infrastructure and HSM during phase-II expansion. However, additional capex would be needed in the downstream cold rolling mills. Management is likely to announce 3-5mtpa expansion in CY17.