DCF Studio

    TATASTEEL.NS · NSI · Basic Materials

    Tata Steel Limited

    Also onConsensus Drift

    Implied value per share

    INR 14.06

    Market price

    INR 185.54

    Implied upside

    -92.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis model values the shares at 7.6% of the market price. A gap that size is a modelling failure rather than a view - most often an unusable beta, a currency or units mismatch, or a cashflow base that does not represent the business. Read the figures below as diagnostics, not as a call.
    AdjustedCapital expenditure runs at 6.9% of revenue against depreciation of 4.6%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: INR assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    INR 14.06-92.4%
    Exit multiple
    INR 76.93-58.5%
    Market price
    INR 185.54

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (INR). Outflows negative.

    0bn43bn86bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayINR
    LineFY27FY28FY29FY30FY31CAGR
    RevenueINR 2266.3bnINR 2230.3bnINR 2194.8bnINR 2159.9bnINR 2125.6bn-1.6%
    EBITINR 174.8bnINR 172.0bnINR 169.3bnINR 166.6bnINR 163.9bn-1.6%
    NOPATINR 130.8bnINR 128.7bnINR 126.6bnINR 124.6bnINR 122.6bn-1.6%
    Add depreciation & amortisationINR 103.2bnINR 101.6bnINR 100.0bnINR 98.4bnINR 96.8bn-1.6%
    Less capital expenditureINR -155.3bnINR -152.8bnINR -150.4bnINR -148.0bnINR -145.7bn-1.6%
    Less increase in working capitalINR 7.7bnINR 7.6bnINR 7.5bnINR 7.4bnINR 7.2bn+1.6%
    Free cashflow to firmINR 86.4bnINR 85.0bnINR 83.7bnINR 82.3bnINR 81.0bn-1.6%
    Discount factor0.94630.84750.75900.67970.6087-
    Present valueINR 81.7bnINR 72.0bnINR 63.5bnINR 56.0bnINR 49.3bn-11.9%
    Present Value Of The ForecastINR 322.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate6.80%INR assumption - no free live source available for this market (assumption)
    Equity risk premium8.00%Market assumption
    Beta0.904Reported 0.857, pulled toward 1.0 (Blume)
    Cost of equity14.03%Risk-free + beta x equity risk premium
    Cost of debt7.66%Interest expense / average total debt
    Market capitalisationINR 2314.5bn71.5% of capital
    Total debtINR 923.8bn28.5% of capital, book value as a proxy
    Tax rate25.2%Effective, capped at statutory
    WACC11.66%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareINR 14.06

    67% of EV

    Forecast FCFF, final year
    INR 81.0bn
    Capex at depreciation, working capital in reinvestment
    INR 122.6bn
    Less reinvestment at g/ROIC (21.4% of NOPAT)
    INR -26.3bn
    Capitalised
    INR 96.3bn
    ROIC (WACC floor)
    11.7%
    Terminal value, undiscounted
    INR 1077.6bn
    Terminal value, discounted
    INR 655.9bn
    Enterprise value
    INR 978.5bn
    Less net debt
    INR 803.1bn
    Equity value
    INR 175.4bn

    Exit at 9.1x EBITDA

    Value per shareINR 76.93

    82% of EV

    Terminal value, undiscounted
    INR 2366.2bn
    Terminal value, discounted
    INR 1440.3bn
    Enterprise value
    INR 1762.8bn
    Less net debt
    INR 803.1bn
    Equity value
    INR 959.7bn

    Spread between methods: 138%.

    Sensitivity

    Value per share (INR) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    9.66%30.7331.0631.4031.7332.07
    10.66%21.3121.6021.9022.1922.48
    11.66%13.5513.8014.0614.3214.57
    12.66%7.047.267.497.727.95
    13.66%1.511.711.912.122.32

    Outlined: this model. Green text: above today's price of 185.54. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-1.6%39.4%+41.0pp
    EBIT margin7.7%22.1%+14.4pp
    Discount rate11.7%5.0%-6.7pp
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    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.