Iron & Steel August 31, 2012 Tayo Rolls Ltd. CMP Rs. 80.1 Company Overview BSE Code 504961 Tayo Rolls Limited, a subsidiary of TATA Steel, was established in 1968 in BSE ID TATAYODO collaboration with Yodogawa Steel Works of Japan. The company’s plant is High/Low 1Y (Rs.) 93.1 / 48 located at Gamharia in Jharkhand, 15 km away from Jamshedpur. The Average Volume (3M) 4,012 company manufactures Rolls (cast and forged rolls), special castings and Market Cap (Rs. Cr.) 82 pig iron. Since its inception, Tayo Rolls has been a market leader and has met the country's roll requirements for different industries. The demand for the company’s products depends on the fortunes of the steel industry. Shareholding % Jun-12 Mar-12 Promoters 73.21 73.21 Company Fundamentals DIIs# 0.02 0.02 Assured demand from Tata Steel FIIs# - - Public & Others 26.77 26.77 Being a subsidiary and a member of the Tata Group, the company is in a position to cater to the cast roll and forged roll requirement of the Tata Steel Group, which is fast growing. Tata Steel has undertaken ambitious Stock Chart ( Relative to Sensex) expansion plans and has already commissioned its thin slab caster and 150 rolling mill at Jamshedpur, while the Kalinganagar project in Odisha is 125 growing at a fast pace. The company is closely working with Tata Steel Europe to become their preferred supplier. 100 Market leader in Forged Rolls 75 The company’s focus is on stabilising the production and improving the 50 quality of ingots, forgings and forged rolls. The company is hopeful of 31-Aug-11 01-Mar-12 31-Aug-12 increasing its market share by improving the quality in the running grades. Tayo Rolls Sensex The focus will be on making big size rolls and minimising the import of these rolls by customers. The company believes with its existing facilities and a small investment, it will be able to dominate the Indian market in Stock Performance (%) 1M 6M 1Yr forged roll category and will emerge as a leading international player in the Tayo Rolls 2.7 19.2 20.9 roll market. In this regard, the company has received orders of 1671 tonnes (596 numbers) of Shaft from the Tata Steel Growth Shop. Sensex 1.1 -1.8 6.2 Technology enhancement to improve product offering Financials FY10 FY11 FY12 Revenue 132.4 133.4 139.6 The new high-end product (Super Nickel Grain Rolls), developed in collaboration with Yodogawa Steel Works, has resulted in repeat orders Y-o-Y -22.0% 0.8% 4.7% and higher share of buy at Tata Steel and JSW Group. At the same time, EBITDA -3.3 -15.6 -16.4 High Speed Steel Rolls, which is under development, will enable the Y-o-Y - - - company to cater to the high-end domestic and overseas markets. Similarly Net Profit -11.5 -30.4 -53.1 HiCr Iron Rolls, with Yodogawa technology, improved the performance of Y-o-Y - - - various mills by 40-45%. For the first time, 1210-mm dia HiCr Steel Roll was EPS (Dil.) -11.24 -29.67 -51.77 successfully spun cast and supplied to the Bokaro Steel Plant of Steel EBITDA Margin - - - Authority of India Limited. This was in addition to the 1210-mm Adamite Net Profit Margin - - - Cast Roll supplied to the plant as an import substitute. Key Strengths P/E(x) - - - Financial year ends at March 31. All figures in Rs. crore except for per share data - Focus on R&D to facilitate market leader position # FIIs- Foreign Institutional Investors # - Tayo Rolls will benefit from growth in the steel industry DIIs- Domestic Institutional Investors - Existing capacity to meet additional demand Initiative of the BSE Investors’ Protection Fund -1- Tayo Rolls Ltd. Company Business Tayo Rolls Limited, a subsidiary of Tata Steel, was established in 1968 in collaboration with Yodogawa Steel Works of Japan. The company manufactures Rolls (cast and forged rolls), special castings and pig iron. The company’s plant is located at Gamharia in Jharkhand, which is 15 km away from Jamshedpur. Since its inception, Tayo Rolls has been a market leader and has met the country's roll requirements for various industries. The cast rolls find application mainly in the rolling mills of steel plants and also in non-metallurgical industries like paper, rubber, etc. The forged rolls are used mainly in the cold rolling mills and also as 'back-up' rolls in hot strip mills. Since a major portion of cast and forged rolls are produced for use in the rolling mills of the steel industry, the growth in the steel industry offers good potential for rolls manufacturers. The company’s capacity for rolls is 13,500 tonnes and in FY12, this division operated at 54% capacity utilization. The company has a fully- integrated production facility for manufacturing cast rolls. For forged rolls, the company imports semi-finished hardened forged blanks which are machined and sold to customers. Roll operation is the primary segment, constituting a large portion of the company's revenues. The company utilises its existing foundry capacity to manufacture Ni-hard rings and balls for coal grinding crushing mills of Thermal Power Plants. As a long-term strategic decision, the company has decided to exit gradually from this business. As a part of backward integration, the company had set up a Mini Blast furnace of 40000 tpa (tonnes per annum) for the manufacture of pig iron. The hot metal from the furnace is partly used for captive consumption for the manufacture of cast rolls by the company. During FY12, there was a turnaround of the pig iron business, owing to better realisations and resumption of supply of Nut coke from Tata Steel . Tayo Rolls Segment Revenue Segmental revenue in FY12 Segmental revenue in FY11 1% 0% 6% 0% 4% 1% 19% 21% 72% 76% Roll Operation Pig Iron Operation Roll Operation Pig Iron Operation Ingot Operation Engg Forgings Ingot Operation Engg Forgings Others Others Source: Company There exists a licence and know-how agreement with Yodogawa Steel Works and Sheffield Forgemasters International Ltd. of the U.K. Owing to these tie-ups, the company has been able to improve its product offerings. The company has been functioning at an operating loss for the past four years. The biggest challenge before for the company during FY12 was reducing its debt portfolio. The company's operations were affected to a very large extent due to shortage of funds. For this reason, the company raised an additional capital of Rs. 85 crore through issuance of preference shares during March 2012. This has eased the fund position considerably and the company is hopeful of better performance in FY13. During FY13, the company will invest Rs 20 crore to complete the forge roll project with additional facilities and planned upgradation of the existing facilities for better and higher productivity. Initiative of the BSE Investors’ Protection Fund -2- Tayo Rolls Ltd Industry Overview The demand for cast and forged rolls primarily depends on the steel industry. Following slowdown of global economy in 2008, steel production has taken a hit. According to data collated by the World Steel Association, production in the first seven months of 2012 stood at 896,944 thousand MT which is about 1% higher than the corresponding production figure in 2011. As per forecasts by the World Steel Association, by 2012, steel use in the emerging and developing economies will be 44% above the 2007 level, while in the developed world, it will still be 15% below the 2007 level. In 2012, the emerging and developing economies will account for 73% of world steel demand compared to 61% in 2007. In India, the apparent steel use, which was subdued at around 4% in 2011, is expected to go up to 7.9% in 2012. 135000 132198 130566 129738 128376 130000 127900 125000 119183 120000 117058 116675 Estimated World Crude Production '000 Metric Tons 115000 110000 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Source: World Steel Association Domestic steel consumption in the April-January period of the year 2011-12 grew by 5.5% to 57.24 million tonnes, primarily on account of growing demand from the construction sector which generally consumes 70% of the volume. The growth in production was higher than demand at 58.35 million tonnes during the April-January period against 54.51 million tonnes over the same period last year. This growth was driven by both capacity expansion and improved capacity utilization. Further, the domestic crude steel production is likely to increase at an average annual rate of ~9% during the next five years (FY13-17) on account of rising trend of domestic steel demand. The production of finished steel is expected to increase from 66 million tonnes in FY11 to 70 million tonnes in FY12 and 76 million tonnes in FY13. According to CMIE, steel prices are likely to rise by 7.2% in 2012. Healthy demand from user industries, higher domestic iron ore prices and a weaker rupee are likely to push up domestic prices. Moreover, steel demand normally picks up when monsoon season ends and the construction activity gathers pace. With steel production on track so far in 2012, the demand for Tayo Rolls’ products will find sustenance. Competitor Analysis The closest listed competitor of Tayo Rolls is Gontermann Peip EBIT Company Year End CMP M Cap Revenue EPS P/E Margin Tayo Rolls Mar-12 78 80 139.8 -9.8% -51.77 - Gontermann Peip Mar-12 9.24 13 126.6 2.3% -14.04 - Source: BSE,Capitaline, Market cap and Revenue in Rs.