Management Discussion and Analysis

The Corus acquisition was completed on 2nd April, 2007.

IV. Consolidation of Ferro Chrome business in India and
Overseas
The Company is one of the largest producers of ferro chrome in India. The Company is setting up a greenfield ferro chrome project in South Africa which will produce 134,500 tonnes per annum of ferro chrome. This project is likely to be commissioned by November 2007. South Africa is the largest producer of ferro chrome in the world and availability of cheap power and chrome ore makes the country one of the most attractive destinations to produce ferro chrome.

On 8th March, 2007, the Company acquired 100% stake in Rawmet Ferrous Industries Private Ltd. in Orissa to strengthen its production capacity for manufacture of ferro chrome in India. Rawmet has a ferro alloys plant which can produce 50,000 tonnes per annum of high carbon ferro chrome.

4. Ownership of strategic raw materials
As part of its long term strategy, the Company is focused on developing raw material sources for its global operations. In this regard, the Company has formed a Global Minerals Group which is actively exploring various opportunities to secure access to iron ore and coal in various geographies. This will enable the Company to continue its competitive cost position in the global steel industry.

5. More from Steel and Branding
The Company remains focused on enriching its product mix and pursuing branding initiatives to move up the value chain. The Company has several well known brands in its portfolio i.e. Tata Steelium (India’s first branded cold rolled steel), Tata Shaktee (galvanised corrugated sheets), Tata Tiscon (re-rolled bars), Tata Pipes, Tata Bearings, Tata Wiron (galvanised wire products), Tata Agrico (hand tools and implements) and most recently Tata Structura (steel hollow sections). Due to consistent efforts in the last few years, the Company’s turnover from branded products increased from Rs. 1,300 crores in FY 2002-03 to Rs. 4,604 crores in FY 2006-07. The Company sold around 1 million tonnes of branded products and crossed the USD 1 billion mark in terms of branded products turnover in the last financial year. Currently, around 25% of the revenue of the Company comes from the sale of branded products in India.

In order to enter into new market segments, the Company entered into a 50:50 Joint Venture agreement with BlueScope Steel for Coated Steel and Building Solutions business in India and other SAARC countries. The JV Company has already set up building solutions facilities in its Pune, Bhiwadi and Chennai plants. The coated steel plant will be in Jamshepur and currently site development work is in progress. This project is likely to be commissioned in 2009.

6. Control Over Logistics
With the proposed expansion of steel capacity in Jamshedpur, Orissa and other green-field projects in India and overseas as well as manufacturing footprints in various countries across the world, the Company’s import / export cargo will increase significantly. To meet the increased requirement and reduce the total logistics cost of sea bound cargo, the Company signed a Joint Venture agreement with Larsen and Toubro Limited to develop a deep-sea water port in Orissa which will handle cape size vessels. This project will be commissioned by early 2010 at an estimated cost of Rs. 2,450 crores.

On 5th December, 2006, Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK Line) entered into a 50:50 Joint Venture agreement for setting up a shipping company to cater to dry bulk and break bulk cargo requirements. The Joint Venture shipping company - Tata NYK Shipping Pte. Ltd., has been incorporated in Singapore.

E) Acquisition of Corus and its Financing
a) Corus Acquisition Process
On 20th October 2006, the Boards of Tata Steel, Tata Steel UK (100% subsidiary of Tata Steel) and Corus reached an agreement on the terms of a recommended acquisition of the entire issued and to be issued share capital of Corus, at a price of 455p in cash for each Corus share. This was to be implemented by means of a Scheme of Arrangement under Section 425 of the UK Companies Act, 1985, and the relevant scheme document was sent to the Corus shareholders on 10th November, 2006.

Subsequently, a competitive situation emerged when a Brazilian steel company - Companhia Siderurgica Nacional
(CSN) subsequently approached Corus with a proposal to make a cash offer. While Tata Steel revised its offer to 500p per share, CSN made a binding offer at 515p per share in December 2006. The Board of Corus recommended CNS’s offer to the shareholders.

As the process got extended, the Panel on Takeovers and Mergers in the UK (the Panel) set a deadline of 30th January, 2007 as the final date by which Tata Steel and CSN could revise their offers for Corus Group plc. The Panel subsequently announced in January 2007 that in order to provide an orderly resolution to this competitive situation, an auction process would be held on 30th January, 2007 to establish final bids from both Tata Steel and CSN. This auction process began in the evening of 30th January (Indian time) and ended in the early hours of 31st January, 2007 (Indian time) when the Panel announced that Tata Steel has won the auction to acquire Corus
at a price of 608p per share.

The Board of Corus subsequently recommended the Tata Steel offer to its shareholders who voted to approve Tata Steel’s Scheme of Arrangement, at an Extra-Ordinary General Meeting held on 7th March, 2007. Corus’ shares were subsequently suspended from trading on each of the London, New York and Amsterdam Stock Exchanges and the Scheme became effective on 2nd April, 2007.

b) Corus Financing Structure
The financing structure of the Corus transaction as on date is given below:

The above financing structure is being re-organised to achieve fiscal unity in Netherlands and consequent tax efficiencies.

c) Corus Financing
On 2nd April, 2007, Tata Steel completed its acquisition of Corus Group plc (Corus) at a price of 608p per ordinary share in cash. The net funding requirement for the acquisition of Corus was Rs. 56,150 crores (USD 12.90 billion). The acquisition was initially funded by a cash contribution by Tata Steel of Rs. 11,750 crores (USD 2.7 billion) (funded by a mixture of its own cash resources and syndicate loans) to Tata Steel Asia Holdings Pte. Ltd. (TSAH). TSAH raised bridge loans of Rs. 10,900 crores (USD 2.5 billion) and Tulip UK Holdings raised a mezzanine loan of Rs. 2,600 crores (USD 0.6 billion) which was invested by way of equity in Tata Steel UK Ltd. To finance the balance of
the consideration due under the acquisition, Tata Steel UK Ltd. (through its wholly owned subsidiary, Tulip Finance Netherlands BV) raised senior debts of Rs. 17,400 crores (USD 4.0 billion) and Mezzanine bridge of Rs. 13,500 cores (USD 3.1 billion). These loans were raised without recourse to Tata Steel.

At the Board Meeting held on 17th April, 2007, Tata Steel’s Board approved the long term funding arrangement for the acquisition of Corus as per details given below:

The Company proposes to infuse USD 4.1 billion as equity to part finance the transaction. The equity will comprise of USD 700 million from internal generation, USD 500 million of external commercial borrowings, USD 640 million from the preferential issues of equity shares to Tata Sons Ltd. in 2006- 07 and 2007-08, USD 862 million from a rights issue of equity shares to the shareholders, USD 1000 million from a rights issue of convertible preference shares and about USD 500 million from a foreign issue of equity-related instrument.

F) Review of Operations – Steel Division
This year witnessed the best ever production of hot-metal (5.55 million tonnes, an increase of 7.3% as compared to 5.18 million tonnes in the previous year), crude steel (5.05 million tonnes, an increase of 6.7% as compared to 4.73 million tonnes in the previous year) and saleable steel (4.93 million tonnes, an increase of 8.3% as compared to 4.55 million tonnes in the previous year).

The “G” Blast Furnace in Jamshedpur crossed 2 million tonnes production of hot metal against its rated capacity of 1.8 million tonnes.

The New Rebar Mill which was installed under the One million tonnes expansion project also achieved its rated capacity of 50,000 tonne per month during the year. The total production of rebars at the Jamshedpur Works almost reached the 1 million tonne mark during the year.

The Hot Strip Mill produced 3.24 million tonnes as compared to 3.08 million tonne in the previous year. The Cold Rolling Mill crossed the milestone of 1.5 million tonnes against its rated capacity of 1.2 million tonnes.

The all round increase in production came with improvements in the manufacturing processes specially in the areas of specific consumption of raw materials, energy, refractories, water and lime.

The Company successfully completed in-house up-gradation of the “E” blast furnace in Jamshedpur. The “E” blast furnace which used to produce 1,050 tonnes per day before up-gradation will now be able to produce 1,350 tonnes per day. The coke and fuel rate consumption of the “E” blast furnace will also reduce due to the increase in the size of the furnace.

Raw Materials
The West Bokaro Collieries for the first time dispatched 1.9 million tonnes of clean coal at an average of 13% ash content. The reduced ash level in captive coal contributed significantly in substituting the more expensive imported low ash coal. In order to reduce the alumina content in the iron ore, a modern beneficiation plant for iron ore fines has been set up by the Company.

Research & Development

• Commercial production of various grades of high strength steel for automobiles was established for the first time.
• Super ductile rebars and galvanised wires with thin organic coating were produced for the first time.
• Breakthrough was achieved in establishing a new grade of cold rolled ultra low carbon electric grade steel which has significant usage in electrical appliances.

G) Marketing & Sales
Finished steel sales increased by 11.3% to 4.51 million tonnes as compared to 4.05 million tonnes in the previous year.

Flat Products sales to the automotive sector were the highest ever at 0.86 million tonnes, an increase of 30% as compared to sales of 0.67 million tonnes in the previous year. Sales of specialty HR coils used for the long and cross members of chasis of heavy vehicles, high end cold rolled and coated sheets were also higher compared to last year.

The domestic sale of long products increased by 27% to 1.3 million tonnes during the year. The sale of Tata Tiscon rebars increased by 25% to 0.97 million tonnes. The concept of “Selling by Piece” of Tata Tiscon rebars was implemented all over India – first of its kind initiative by a steel company in India.

Sale of branded products increased by 13% to 0.99 million tonnes. The turnover of branded products increased by 19% to Rs. 4,604 crores. A series of initiatives were undertaken towards achieving better customer service and market focus. The Theory of Constraint (TOC) for vendor managed inventory was initiated for 3 models at Tata Motors with zero stock outs. The Company also received the Global Supplier Approval from Honda Engg. Services (Honda Car, Japan) for supplying cold rolled cold annealed products.

TOP