Directors' Report

Proposed Rights Issues

In order to part finance the acquisition of Corus Group plc, UK, the Company proposes to raise the following equity capital:

i) Rights Issue of Ordinary Shares to the shareholders in the ratio of 1:5 at a price of Rs. 300 per share (Rs. 10 each) aggregating to Rs. 3,655 crores. The issue has been priced so as to make it attractive to the shareholders of the Company on the occasion of the Company’s centenary year.

ii) 2% Cumulative Convertible Preference Shares (CCP) of Rs. 100 each, compulsorily convertible into Ordinary Shares of Rs.10 each any time between 18 to 30 months from the date of allotment, with an indicative conversion price in the range of Rs. 500 to Rs. 600 per Ordinary Share (on ex-rights basis) or such higher price as may be decided by the Board or the Committee thereof at the time of the issue. The date of conversion, conversion price and the ratio in which the CCP Shares will be offered to the shareholders, will be determined at the time of issue. A total amount of approx. Rs. 4,350 crores or such amount as maybe approved by the Board is proposed to be raised.

The record date will be announced once the SEBI approves the draft Letter of Offer.

Increase in Authorised Share Capital

In order to facilitate the issue of Cumulative Convertible Preference Shares, the authorised share capital of the Company is proposed to be increased from Rs. 2,000 crores to Rs. 8,000 crores by creation of a new class of Capital viz. 60,00,00,000 Convertible Cumulative Preference Shares of Rs. 100 each aggregating to Rs. 6,000 crores.

Brownfield Projects

The expansion project undertaken by the Company at its Jamshedpur Works to produce 6.8 mtpa crude steel is progressing satisfactorily. Orders for major equipment have been placed and the project is expected to be completed by June 2008. The Company has also initiated a program for further expansion of crude steel making capacity by 2.9 mtpa to 9.7 mtpa at Jamshedpur. This expansion project is expected to be completed in 2010.

Coke is one of the main raw materials in the steel making process. Consequent to the expansion programs, the increased requirement of coke will be sourced from Hooghly Met Coke Company Limited, a subsidiary of Tata Steel. The coke making facility is being set up with a production capacity of 1.6 mtpa. The production is expected to commence in 2008.

In the Tubes Division, the first phase of modernisation has been completed. A 3” Commercial Tube Mill, 4” Precision Tube Mill and a state-of-the-art Cold Drawn facility have been commissioned. Production capacity, as a consequence, has increased from 2,30,000 tonnes to 3,25,000 tonnes.

During the year, the Company incurred capital expenditure of Rs. 2,007.68 crores.

Greenfield Projects

Tata Steel has been undertaking the integration of its South East Asian Operations

The process of land acquisition and rehabilitation work for the 6 mtpa integrated steel plant in Kalinganagar, Orissa is in progress. Orders for some major equipment have also been placed.

Further, the Company has signed MoUs for setting up greenfield projects in Chhattisgarh and Jharkhand. Discussions with the concerned authorities for allotment of new mines, environmental clearances, land acquisition, rehabilitation packages, etc. have been initiated. Commencement of work on these projects would depend on satisfactory conclusion of the above issues.

The Company is exploring opportunities for setting up facilities for extraction of heavy minerals, upgradation of Ilmenite to synthetic Rutile and a captive power plant at Tamil Nadu.

South East Asian Operations

Tata Steel has been undertaking the integration of its South East Asian Operations i.e. NatSteel Asia Pte. Ltd. and Tata Steel (Thailand) Public Co. Ltd. (erstwhile Millennium Steel).

Tata Steel (Thailand) Public Co. Ltd., a subsidiary of the Company, increased finished steel production by 18% over the previous year at 1.14 million tonnes. Steel sales were higher by 16% at 1.12 million tonnes and revenues were higher by 22% over the previous year at Rs. 2,587 crores (USD 595 million). Inspite of increased imports from China into South East Asian markets and the political disturbance in Thailand, Tata Steel (Thailand) Public Co. Ltd. recorded an improved performance to post an Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of Rs. 289 crores (USD 67 million). The EBITDA margin improved to 11.2% as compared to 6.7% during the previous year. The Company turned around to make a Net Profit of Rs. 125 crores (USD 29 million) for 2006-07.

The turnover of NatSteel Group increased by 8.5% over the previous year at Rs. 4,396 crores (USD 1.01 billion). Net Profit (after Minority Interest) for 2006-07 was Rs. 76 crores (USD 17 million) which was lower than the previous year primarily on account of increased imports from China and higher scrap prices which adversely affected the profitability of the Company.

As part of regional consolidation, NatSteel Asia Pte. Ltd. acquired 100% equity stake in NatSteel Trade International Pte. Ltd., Southern NatSteel (Xiamen) Ltd. in China and a majority stake in NatSteel Vina Co. Ltd. in Vietnam

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