IV. Outlook

Global economy continues on the recovery path although the macro-economic risks have remained. The major risks of euro area breakup and sharp fiscal consolidation in the US were averted with timely political intervention. While the unemployment still remains high in the US, growth is expected to continue on the back of stronger private demand and low policy rates. Forecasts for the euro area continue to remain depressing with weakening core countries apart from the already weak peripheries. Japan is expected to move on the growth path with strong monetary easing and fiscal stimulus. China is expected to have moderation in their growth as it continues to rebalance the economy in the near future. According to the forecasts of the International Monetary Fund, the World GDP is expected to grow by 3.3% in 2013 with advanced economies growing by 1.2% and the emerging and developing economies growing by a much faster rate of 5.3%; while the euro area continues to contract mildly by 0.3%.

Steel prices bottomed out around October 2012 and increased across regions until about February 2013 when overcapacity issues and weaker demand prospects dampened the sentiment. Indian domestic steel prices, however, did not improve due to slowing demand and gradually increasing production. Prices of iron ore in the seaborne market have stabilised in the recent months while there has been a downward trend for the coking coal prices. With the reopening of more iron ore mines in Karnataka, domestic supply of iron ore is expected to increase gradually and prices are expected to fall in the domestic market.

Steel demand growth globally is expected to continue due to growth in the emerging and developing economies. As per the forecasts from World Steel Association (WSA), worldwide apparent steel demand is expected to grow by 2.9% to 1,454 mt in 2013 and by 3.2% in 2014 to 1,500 mt (following the 1.2% growth in 2012). Steel demand in China is expected to grow by 3.5% and by 2.5% in 2013 and 2014 respectively as the country tries to rebalance the growth model and gradually focuses on the service sectors. Growth in the NAFTA region is expected to be slow following the strong growth in 2012, mainly due to fiscal consolidation measures in the US. Continuing worries concerning the euro zone may reduce the steel demand by 0.5% in 2013 before growth resumes in the next year. India's steel demand growth is projected at 5.9% and 7.0% in 2013 and 2014 respectively with expected support from the reform measures and narrowing of fiscal deficits.

V. Finance

In the context of the difficult macro-economic environment, the Company adopted a financing strategy for the year focused on two key components – (a) maintenance of a liquidity buffer for continued global operations (the total liquidity headroom of the company was Rs. 16,644 crores as of 31st March, 2013, comprising cash & cash equivalents and undrawn lines) and (b) sustenance of leverage pressures on account of increasing volumes and capital expenditure requirements in India. With this objective, a new unsecured rupee term loan facility of Rs. 2,000 crores tied up in March 2012 was utilised through the year while two shortterm commercial papers for Rs. 975 crores each were issued and repaid post September 2012. The Company also issued two series of debentures – (a) non-convertible debentures worth Rs. 1,500 crores carrying a coupon of 2% with redemption premium for a tenor of 10 years on a private placement basis in April 2012 and (b) non-convertible unsecured debentures worth Rs. 1,000 crores carrying a coupon of 9.15% repayable in equal instalments in January 2019 and January 2021. The Company set up a buyers credit facility of Yen 1,198 mn ( approx. US$15 mn) with Japan Bank for International Co-operation and The Bank of Tokyo- Mitsubishi UFJ Ltd., in September 2012. Further, the Company has also raised Rs. 1,300 crores (SGD 300 million) in April 2013 through 4.95% senior unsecured notes due in 2023 through its wholly owned subsidiary in Singapore, Abja Investments Pte Ltd. The bonds are listed on the Singapore stock exchange. The Company plans to utilise these amounts towards funding its capital expenditure requirements.

The financing initiatives of the Company have been closely linked as enablers of various operational and business requirements. This has been endorsed by multiple independent ratings agencies as reflected in their existing ratings of the Company being maintained for the year despite the declining external environment. In August 2012, Fitch reaffirmed Tata Steel Limited's rating at BB+ while changing its outlook from "Stable" to "Negative". The Domestic Rating of Tata Steel Limited and the loans availed from banks has been reaffirmed at AA. Short term facilities have also been reaffirmed at A+. Further, Moody's Investors Service reaffirmed Tata Steel Limited's Corporate Family Rating at Ba3 while changing its outlook from "Stable" to "Negative" while S&P revised Tata Steel Outlook to Negative from Stable and re-affirmed 'BB' Rating. The decline in the near term outlook across the agencies are due to a challenging external environment for the global steel industry. However, the Company remains geared to meet these challenges through an increased emphasis on deleveraging the balance sheet, reconfiguring capital expenditure requirements and adopting a flexible financing strategy. The full benefit of the 3 mtpa expansion in Jamshedpur is also expected to accrue in the future which will further strengthen the performance of the Company.

VI. Financial Performance

1. Tata Steel standalone

Profit After Tax at Rs. 5,063 crores during the Financial Year 2012-13 was lower by 24% as compared to the Financial Year 2011-12 (Rs. 6,696 crores) primarily due to non-cash impairment provision of Rs. 687 crores in the Financial Year 2012-13 and profit on sale of non-current investments of Rs. 511 crores in the Financial Year 2011-12. The diluted earnings per share was at Rs. 50.28 for the Financial Year 2012-13 (Financial Year 2011-12: Rs. 66.62) while the basic earnings per share was at Rs. 50.28 for the Financial Year 2012-13 (Financial Year 2011-12: Rs. 67.84).

The analysis of major items of the financial statements is shown below:

a) Net sales and other operating income

Net sales increased during the Financial Year 2012-13 by 13% as compared to the Financial Year 2011-12. This increase was primarily due to increase in sales volume at steel division during the Financial Year 2012-13 which recorded an increase of 13% over the Financial Year 2011-12. There was also an improvement in average steel prices of Long products during the year. However the impact of the same was partly offset by lower realisations in Flat Products due to market slowdown and higher proportion of Hot Rolled Coils. Division wise net sales are as shown below:

Purchase of finished, semi-finished steel and other products during the Financial Year 2012-13 at Rs. 453 crores were higher by Rs. 243 crores as compared to the Financial Year 2011-12. A significant portion of this increase was on account of higher purchases by Tata Steel Growth Shop (TGS) to support project activities at Kalinganagar as well as higher purchases at Wires division.

c) Raw materials consumed

Raw materials consumed increased primarily due to higher production volumes as well as rates, higher consumption of purchased coke and increase in freight and handling of own materials. The increases were partly offset by reduction in the cost of imported coal during the year.

d) Payments to and Provisions for employees

The payments to and provisions for employees increased by 18% on account of normal salary increases and consequential increase in retiring benefits provisions. Retiring benefits provisions increased further during the year due to change in actuarial assumptions.

e) Stores and spares consumed

Stores consumed (including industrial gases and spares) increased over the Financial Year 2011-12 primarily on account of higher consumption of operational spares, industrial gases and other stores and spares to support higher production.

f) Repairs to machinery

Increase in repairs to machinery as compared to the Financial Year 2011-12 was mainly on account of increase in mechanical contract jobs at mines and collieries and overhauling and other maintenance activities at various steel making facilities in the Steel Works.

g) Conversion charges

There was an increase in the conversion charges by 29% over the Financial Year 2011-12 primarily due to increase in conversion activities at Ferro Alloys and Minerals division and Long products. There were also rate increases at both Long products and Flat products and Ferro Alloys and Minerals division. Higher volume and rates for tin coating activities resulted in further increase in the conversion charges.

h) Purchase of power

Power purchase cost increased by 29% during the Financial Year 2012-13. This was mainly due to increase in cost for own use and higher purchases for outside sales. Increase in own use was both on account of rate and volume to support higher production of hot metal.