Management Discussion and Analysis

The Company plans to achieve these long term objectives through various strategic initiatives which are discussed
below:

1. Strong Base in India
India is the seventh largest steel producer in the world and among the fastest growing steel producers globally. India is one of the best countries to produce steel at a competitive cost by virtue of availability of key raw materials viz. iron-ore, coal (to some extent) and skilled labour. Steel consumption in India is likely to increase at a rapid pace in the future due to large investments planned in infrastructure development, increased urbanisation and growth in key steel consuming sectors viz. automotive, construction, capital goods and other manufacturing sectors. The per capita steel consumption in India is quite low compared to the world average and also compared to the countries like China, USA, Europe, Japan and others. Considering the future economic climate in India, the per capita consumption of steel in the next decade is expected to increase significantly from the current levels. As part of its strategy to retain its pre-eminent position in the Indian markets, the Company has drawn elaborate plans to significantly enhance its presence in India in the near future. The Company’s plans for expanding its capacity is based on brownfield expansion in Jamshedpur and greenfield projects as discussed in the following paragraphs.

a) Brownfield projects in India
After successful completion of the 1 million tonne steel expansion in Jamshedpur, the Company is currently expanding its crude steel making capacity from 5 million tonnes to 6.8 million tonnes which will be commissioned by June 2008. The current expansion will enhance the Company’s capacity to produce billets and slabs by 1.5 million tonnes and 0.3 million tonnes respectively which will be rolled into finished products in various finishing mills within the fold of the Company. The project cost is estimated at Rs. 4,550 crores. To leverage the potential of Jamshedpur further, the Company is planning to expand its crude steel production capacity from 6.8 million tonnes to 9.7 million tonnes by 2010. This expansion is likely to be cost competitive (both in terms of capital cost and operating cost) since the Company is planning to upgrade the capacity of its existing blast furnaces and other facilities. As part of this expansion, the Company will install a new Thin Slab Caster Rolling (TSCR) facility in Jamshedpur, which will increase Flat Products capacity by 2.9 million tonnes. The project cost is estimated at around Rs. 9,100 crores.

b) Greenfield Projects in India
The Company is planning to set up a 6 million tonne integrated steel project at Kalinganagar in the state of Orissa. This project will be executed in two phases of 3 million tonnes each, with the first phase to be commissioned by 2010. The Company has placed orders for major equipments viz. Blast Furnace and Steel Melting Shop and is in the process of completing land acquisition and rehabilitation of families residing on the land. The Company has made an application for fresh iron ore leases to the Government and the approval process is in progress.

The Company is also pursuing setting up integrated steel plants in Chhattisgarh and Jharkhand in phases in the
future.

c) Other Projects in India
The Company is setting up a 1.6 million tonne metallurgical coke making facility in Haldia to support future enhanced coke requirement in Jamshedpur. The project cost is estimated at Rs. 1,150 crores and will be commissioned by March 2008. The Company has acquired requisite land, completed civil work and placed orders for major equipments.

2. Primary steel making in countries rich in Iron Ore and / or Coal / Gas
The Company believes in a de-integrated production philosophy to maximise value in the steel industry. The Company has identified possible locations to set up primary steel making facilities in the long term. These locations (including India) are attractive by virtue of competitive factors of production i.e. availability of raw material, energy sources etc. The Company intends to link low cost steel production facilities with the most favourable steel consuming markets, to maximise value creation across the entire value chain. The Company intends to have a balance between the growing markets of the developing countries and the mature markets with high end products and technology. Investments in NatSteel Asia Pte. Ltd. and Tata Steel (Thailand) Public Co. Ltd., (erstwhile Millennium Steel) were steps taken in this direction.

3. Overseas acquisitions in growing and mature markets
For long, the steel industry has been plagued with the issues of cyclicality, pricing and demand-supply gap. The steel industry is highly fragmented and the top 5 steel producers control less than 20% of market share in the world. However, the mining companies, who are suppliers of raw materials viz. iron ore and coal to the steel companies and the automobile companies, who are the major customers of the steel companies are highly consolidated in their respective sectors. Consolidation in the steel industry is likely to address the issues of price stability, foster further focus on technology and innovation to enable the industry to serve its customers better with new product offerings and better supply chain efficiencies. The global steel industry has started witnessing consolidation moves in the last few years but these were largely focused on regional consolidation (see chart below). It is expected that the industry would witness increased pace of cross border consolidation in the next few years.

I. Strategic Rationale for acquisition of Corus
The Company’s investment in Corus Group plc (which was completed in April 2007) is consistent with the Company’s stated objective of growth and globalisation. Post Corus acquisition, Tata Steel is the sixth largest steel producing company in the world with a steel making capacity (crude) of around 28 million tonnes. Corus is Europe’s second largest and the ninth largest steel producer in the world and produced 18.3 million tonnes of crude steel in 2006. Corus has crude steel production capacity of 21.2 million tonnes in UK and Netherlands. Corus also has downstream manufacturing facilities in Germany, France, Norway and Belgium. In the UK, Corus has a 14.4 million tonne capacity - Port Talbot (4.7 million tonnes), Scunthorpe (4.5 million tonnes), Teesside (3.9 million tonnes) and Rotherham (1.3 million tonnes). The Ijmuiden plant in Netherlands has a crude steel capacity of 6.8 million tonnes and is also one of the lowest cost producers of steel in the Western Europe.

Corus is one of the leading suppliers of steel to the automotive, construction, packaging, engineering, rail, aerospace, metal goods, and oil and gas industries. Corus has a strong Research and Development capability which focuses on continuous improvement in manufacturing processes and development of high value added steel products. Through the acquisition of Corus, Tata Steel would also have a presence in the developed markets of Europe, have access to the strong product portfolio and research and development facilities in Corus.

The combined businesses of Tata Steel and Corus will be driven by a common vision and strategy to cater to the requirements of the global customers from its worldwide operations.

The steel industry is also undergoing structural changes and increased consolidation in the steel sector is likely to result in a re-rating of the industry in the near future.

II. Valuation of Corus Group plc
The Enterprise Value (EV) of the Corus acquisition was around Rs. 59,850 crores (USD 13.75 billion), which includes its continuing debt of Rs. 3,700 crores (USD 0.85 billion). The Enterprise Value/tonne of the Corus acquisition works out to around Rs. 32,700/tonne (USD 751/tonne) based on Corus’ actual crude steel production of 18.3 million tonnes in 2006 and Rs. 28,250/ tonne (USD 649/tonne) based on its crude steel capacity.

III. Integration of overseas acquisitions
a) Integration of Corus and Tata Steel
The Integration philosophy of the Tata Steel Corus combine is premised on the strong cultural fit and corporate governance practices of the two companies. To facilitate integration and create a virtual organisation across the combined businesses, a Strategic and Integration Committee (SIC) has been formed with Mr. Ratan Tata as the Chairman, Mr. B. Muthuraman, Mr. Philippe Varin, Dr. T. Mukherjee, Mr. Rauke Henstra, Mr. Koushik Chatterjee and Mr. David Lloyd as members. The SIC will develop the common agenda for the combined Group that will focus on continuous improvement, sharing of best practices, manufacturing excellence, cross fertilisation of research and development capabilities, rationalisation of costs across the businesses and create the foundation to pursue growth in the future. A structured approach has been undertaken and the entire integration is being co-ordinated by a Program Office formed for the above purpose. Several teams having representations from both companies have
already been set up to handle the integration and strategic work streams.

b) Integration of NatSteel Asia Pte. Ltd. and Tata Steel (Thailand) Public Company Ltd. (erstwhile Millennium Steel)
The Company has undertaken integration of NatSteel Asia Pte. Ltd. and Tata Steel (Thailand) Public Company Ltd. since their acquisition. This was achieved through the formation of a number of working committees with active participation from all companies. These committees focus on key areas like access to new markets, synergy in procurement, product mix improvement, new product development, Total Operations Performance (TOP) in operations and marketing.

To consolidate its position further in South-East Asia, NatSteel Asia (Singapore) Pte. Ltd., a wholly-owned subsidiary of the Company has 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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