JSW Steel and Tata Steel the only contenders

Companies covered JSW Steel Jindal Steel & Power Tata Steel Coal India Valuations: Indian Companies 73mt opportunity JSW Steel and Tata Steel the only contenders Indian steel demand growth has historically moved in tandem with the economic cycle. However, demand growth CAGR has been 6-8% if looked in 10-year windows. We expect Indian steel demand to grow at a CAGR of 7.3% over the next 10 years. Indian steel producers' recent investments in adding capacities will only help meet demand for the next three years. The gap between demand and supply is expected to start emerging as early as FY21, and widen to 73mt by FY27 if no investment is made. Therefore, it is the right time to build globally competitive new capacities, which will require large capex of INR150-250b. We note that only JSW Steel (JSTL) and Tata Steel (TATA) have the balance sheets to support such capex. All other large private names are either under debt trap or have stretched balance sheets, with possibility of Indian banks exercising bankruptcy proceedings against some of them. Public sector companies have a poor execution track record. JSTL is our top pick. We expect its stock price to double in three years. We are raising the target price to INR280/share, rolling it over to FY19E. TATA's business is structurally improving due to its exit from weak assets and derisking from pension liabilities in the UK. We are raising the target price to INR581, rolling it over to FY19E. We upgrade the stock to Neutral. We had recently upgraded Jindal Steel and Power (JSP) to Buy as it is in the final stages of commissioning a new furnace, which will drive strong volumes growth and turnaround of the business. We maintain our Buy rating on the stock. Coal India's stock performance is expected to remain sluggish until concerns around grades, wage hike and volume growth are behind. We have cut estimates, but maintain our Buy rating. We maintain Buy on NMDC as it has high-quality iron ore and low-cost operations, while valuations are attractive. We maintain Sell on SAIL as it is still struggling with its cost structure and project execution. Also, debt continues to rise on its balance sheet. Its old furnaces are becoming economically unviable and will need to be closed. Rating Price MCAP EPS P/E (x) EV/EBITDA (x) P/B(x) (INR) (USD M) FY17E FY18E FY19E FY18E FY19E FY18E FY19E FY18E FY19E Steel Tata Steel Neutral 502 7,565 37.0 50.2 66.5 10.0 7.5 6.7 6.0 1.4 1.2 JSW Steel Buy 195 7,313 14.8 19.8 22.6 9.9 8.6 7.9 7.4 1.8 1.5 JSPL Buy 125 1,768-20.9-16.0-2.5-7.8-49.3 9.5 6.7 0.4 0.4 SAIL Sell 57 3,646-6.2-11.2 2.0-5.1 28.6 39.9 9.2 0.7 0.7 Non-Ferrous Hindalco Buy 195 6,253 16.2 22.6 25.9 8.6 7.5 5.9 5.2 1.2 1.1 Nalco Neutral 65 2,602 3.7 3.6 4.0 18.2 16.1 7.2 6.4 1.2 1.2 Vedanta Neutral 237 10,877 15.1 24.5 27.4 9.6 8.6 5.8 5.8 1.3 1.2 Mining Coal India Buy 255 25,022 14.9 17.6 18.6 14.5 13.7 6.8 6.5 6.5 6.4 Hindustan Zinc Neutral 241 15,792 19.7 21.5 23.7 11.2 10.2 6.7 5.7 2.8 2.4 NMDC Buy 112 6,909 10.0 12.1 12.8 9.3 8.8 5.7 5.3 1.5 1.4 Sanjay Jain (SanjayJain@motilaloswal.com@MotilalOswal.com); +91 22 3982 5412 Dhruv Muchhal (Dhruv.Muchhal@motilaloswal.com@MotilalOswal.com); +91 22 3027 8033 Sector Update 22 June 2017 Metals Investors are advised to refer through important disclosures made at the last page of the Research Report. Motilal 8 August Oswal 2016 research is available on www.motilaloswal.com/institutional-equities, Bloomberg, Thomson Reuters, Factset and S&P Capital. 1

Indian steel demand growth came in below historical average for the fifth consecutive year (+2.6% in FY17 a near bottom). We note that Indian steel demand growth has historically moved in tandem with the economic cycle. However, demand growth CAGR has been 6-8% if looked in 10-year windows. Exhibit 1: Indian steel demand growth will start accelerating 21.3 Indian steel consumption growth (%) FY95 FY97 FY99 FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY17 FY19E FY21E FY23E FY25E FY27E 0.4 0.8 4.1 2.2 3.8 6.6 4.9 3.2 7.6 8.0 9.8 3.5 6.9 3.9 5.9 2.6 4.0 5.0 7.0 8.0 9.0 8.7 8.4 8.1 7.8 7.5 14.4 13.9 12.9 11.4 13.4 11.9 Source: JPC, MOSL It is the right time to start building new capacities 73mt opportunity Indian s per capita steel consumption of 64kg is just 29% of the world average of 220kg. Historically, steel consumption for the industrially developed countries has peaked at 3-5x of global per capita average steel consumption at that time, ranging from 600 to 800kg. The ratio has declined over time due to the declining share of the under-developed part of the world. Therefore, we believe that Indian steel consumption peak will be at ~1.5-2x of the world average at that time, or at 400-450kg. This implies steel consumption of 500-600mt for India at peak. Although the peak may be 20-30 years away for India, it is still reasonable to assume that Indian steel consumption will grow at a CAGR of 7.3% over the next 10 years (FY17-27E; Exhibit 1), in line with the historical growth rates. The risk to 7.3% CAGR estimate is very low because we are starting at the bottom of the demand growth cycle. The investment cycle is likely to pick up gradually as banking system balance sheet is healed with time. Exhibit 2: Gap will emerge between demand and supply in a few years 53 56 57 61 69 76 70 74 76 75 85 88 92 99 6 107 15 116 25 126 36 137 48 148 60 159 73 171 Indian saleable steel production (m tonne) FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E FY23E FY24E FY25E FY26E FY27E Gap JSW Tata JSPL Bhushan Essar RINL SAIL Others Source: JPC, MOSL Indian steel producers recent investments in adding capacities will only help meet demand for the next three years. The gap between demand and supply is expected to start emerging as early as FY21, and widen to 73mt by FY27 if no investment is made. Therefore, it is the right time for the Indian steel producers to start building new capacities. 22 June 2017 2

Must build only globally competitive furnaces It is important that Indian mills construct new globally competitive and efficient capacities rather than depending on the country s historical advantage because India s iron ore and labor cost advantage is not sustainable. As Chinese steel production peaks and its scrap generation takes off, demand for iron ore will peak in a few years. A lot of new supply from Brazil is struggling for global seaborne trade. Therefore, high iron ore prices are not sustainable. 3-5mtpa furnace is the new economic size for being globally competitive. Therefore, we believe that mills that have the balance sheet to fund INR150-250b capex are best placed. Only JSW Steel and Tata Steel have balance sheets for such investments Stretched balance sheet is the biggest hurdle for the Indian mills. Post curb on imports in February 2016 through various tariff/non-tariff measures, the margins of the Indian mills have improved. However, the balance sheet of almost every steel mill remains extremely stretched if not in debt trap. Furthermore, competitiveness of many inefficient secondary (sponge iron route) mills is under pressure in the absence of low-cost iron ore and coal from Indian mines. Exhibit 3: Stretched balance sheet of Indian mills (Net Debt/EBITDAx) 24.8 26.9 4.2 4.5 8.5 9.8 11.9 14.1 5x 16.1 JSW Steel Tata Steel Essar Steel JSP RINL Bhushan Steel Bhushan Power SAIL* Others *FY18 Source: JPC, MOSL Companies such as Essar Steel, Bhushan Steel, Bhushan Power, Monnet Ispat and Electrosteel Steels are already in debt trap Indian banks may invoke bankruptcy code against them. JSPL s balance sheet is highly stretched. Public sector producers SAIL, RINL and NMDC are all suffering from poor execution, struggling to benefit from investments done over the last 10 years. We expect SAIL s steel production to peak after a few years because market dynamics will force closure of unviable old/small furnaces. Also, the company s stretched balance sheet and poor track record in execution will prevent it from adding new capacities. It will be good if SAIL sells some of its less profitable plants to investors keen on turning them around, while the company can use the proceeds to invest in other plants, in our view. Only JSW Steel and Tata Steel have the balance sheets and strong cash flows to support new investments. JSW Steel has already announced investment of INR268b to expand crude steel capacity by 5-6mt to 23-24mt. Tata Steel is focusing on derisking its business in Europe. Thereafter, we expect Tata Steel to undertake capacity expansion at Kalinganagar (KPO) to leverage the infrastructure. 22 June 2017 3

22 June 2017 Sector Update Metals/Utilities Update Sector: Metals JSW Steel BSE SENSEX S&P CNX 31,284 9,634 Stock Info Bloomberg JSTL IN Equity Shares (m) 2,417 52-Week Range (INR) 209/133 1, 6, 12 Rel. Per (%) 1/7/26 M.Cap. (INR b) 481.5 M.Cap. (USD b) 7.5 Avg Val ( INRm) 1137 Free float (%) 58.4 Financials Snapshot (INR b) Y/E MAR 2017 2018E 2019E Net Sales 556.0 628.2 644.1 EBITDA 122.6 137.8 146.5 PAT 35.8 47.8 54.6 EPS (INR) 14.8 19.8 22.6 Gr. (%) NM 33.6 14.1 BV/Sh (INR) 93.7 109.7 129.8 RoE (%) 17.3 19.4 18.8 RoCE (%) 7.9 8.8 8.9 P/E (x) 13.4 10.1 8.8 EV/EBITDA (x) 8.1 7.2 6.7 Shareholding pattern (%) As On Mar-17 Dec-16 Mar-16 Promoter 41.6 41.6 41.5 DII 16.9 17.2 18.2 FII 20.5 20.9 19.8 Others 20.9 20.3 20.5 FII Includes depository receipts Stock Performance (1-year) CMP: INR199 TP: INR280(+40%) Buy Tested, proven low-cost growth to double stock price Operating cost to decline by INR1,000/t; Reiterating Buy Leveraging its existing infra and expertise to grow at low cost JSW Steel (JSTL) is the largest Indian steel producer and fastest growing steel company in the world. JSTL has been able to add new capacities at low specific capex as it has developed strong in-house project execution expertise and has advantage of site layouts. JSTL is leveraging its old furnaces to expand capacity by rebuilding them. Recently, the Dolvi plant s capacity was increased from 3.3mtpa to 5mtpa at specific capex of USD400/t. JSTL is again leveraging this site to double the capacity to 10mt at low specific capex of USD461/t. This is very attractive relative to specific capex for greenfield projects (e.g. USD1,200-1,300/t for Tata Steel at Kalinganagar). The project cost is less than 5x of expected EBITDA generation, which implies accretion to equity value on reinvestment. There are tax benefits at Dolvi, which boosts its margins. JSTL has more such opportunities at Salav and Vijaynagar to drive future growth. Various operational improvements will boost EBITDA/t by INR1,000 JSTL s specific opex is lowest in the industry because its furnaces are new and of large globally competitive size. The opex will improve further as it starts operations at the recently acquired iron ore mines in Karnataka in FY18E. This will save nearly IN12b (4.7mtpa@INR2500/t) FY19E onward in transportation cost, as captive ore will displace purchases from Odisha and Chhattisgarh for its Vijaynagar operations. A pipe conveyor too is expected to get commissioned in FY18, which will save nearly INR5b annually in iron ore trucking cost (20mt@INR250/t) in Bellary. Rebuilding of blast furnace no. 3 at Vijaynagar will expand capacity by 1.3mt to 4.5mtpa and result in savings of INR9b (4.5mt @INR2000/t). A digitization exercise is expected to bring annual savings of INR3b. We expect a boost to EBITDA/t by INR1,000/t from these operational improvements. Iron ore supply to ease for the company JSTL will benefit from the upcoming iron ore mining auctions as leases of merchant mines, which were operating on deemed extension, will expire by the end of FY20. The Indian government is working on creating a separate window for end-users, easing competition with traders. Also, we expect the 30mtpa cap on iron ore mining in Karnataka to rise, which will improve supply and ease prices of iron ore. Reiterating Buy; expect stock price to double in three years As Dovli expansion is completed by FY20, JSTL is likely to operate at 21mtpa runrate of steel sales in 2HFY21. JSTL s EBITDA/t has averaged INR7,800 over 10 years, irrespective of volatility in steel prices. We expect the margins to improve to INR9,000/t on operational improvements, easing supply in Karnataka, and new captive iron ore mines. This will raise EBITDA run-rate to INR190b, while net debt is likely to remain stable or decline gradually if no new investments are undertaken. We expect 5mtp expansion and various downstream investments with total capex of INR268b to get funded from cash profit. As a result, the stock price is likely to double in three years. We roll over the target price to FY19E and raise it to INR280/share. Reiterate Buy. 22 June 2017 4

Exhibit 4: Consolidated EBITDA/t (INR/t) Consolidated EBITDA/t (INR) 7,809 7,325 7,728 7,809 8,295 8,751 9,153 5,026 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Exhibit 5: Comparison of specific capex (USD/t) 1.4 1.3 Specific capex - USD b/mt 1.0 0.4 0.46 Bhushan Tata Steel Kalinganagr NMDC JSW Dolvi 3mt to 5mt JSW - Dolvi expansion (5mt) Exhibit 6: Net debt : EBITDA (x) Net Debt (INR b) EBITDA (INR b) Net debt/ebitda 8.3 4.4 4.3 4.2 4.7 5.1 4.2 3.7 3.4 213 49 261 61 276 65 430 92 477 94 506 61 516 123 505 138 493 146 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Exhibit 7: JSW Steel - SOTP Year 2015 2016 2017 2018E 2019E 2020E 2021E 2022E A. S/A volumes 12.0 12.1 14.8 15.8 16.0 16.5 19.0 21.0 B. EBITDA per ton 7,368 4,736 7,868 8,320 8,729 8,500 8,500 8,500 C. S/A EBITDA (AxB) 88,716 57,225 116,288 131,040 139,657 140,250 161,500 178,500 D. Sub. EBITDA 5,306 3,505 6,310 6,795 6,795 7,135 7,492 7,867 E. Cons. EBITDA (C+D) 94,023 60,730 122,598 137,835 146,452 147,385 168,992 186,367 F. Target EV/EBITDA (x) 7.0 7.0 7.0 7.0 7.0 7.0 7.0 G. Target EV (FxG) 425,109 858,185 964,845 1,025,165 1,031,696 1,182,944 1,304,566 less: Net Debt (Rs m) 477,283 505,698 515,655 504,752 493,178 482,426 428,118 340,508 add: CWIP 82,653 69,040 43,631 83,631 143,631 203,631 43,631 43,631 Equity value 543,724 675,618 752,901 798,456 1,007,688 No. of shares 2,417 2,417 2,417 2,417 2,417 Implied value /sh. 225 280 311 330 417 22 June 2017 5

Financials and Valuations Income Statement (INR Million) Net Sales 343,681 382,097 512,197 529,715 418,789 556,046 628,211 644,143 Change (%) 42.6 11.2 34.0 3.4-20.9 32.8 13.0 2.5 EBITDA 61,019 65,039 91,655 94,023 60,730 122,598 137,835 146,452 EBITDA Margin (%) 17.8 17.0 17.9 17.7 14.5 22.0 21.9 22.7 Depreciation 19,332 22,375 31,826 34,345 31,879 35,154 38,191 39,834 EBIT 41,687 42,664 59,829 59,678 28,851 87,444 99,644 106,618 Interest 14,273 19,675 30,479 34,930 33,027 37,681 39,633 37,327 Other Income 769 697 858 1,114 1,682 1,521 3,396 3,485 Extraordinary items -15,353-4,302-17,128-471 -21,254 0 0 0 PBT 12,830 19,385 13,081 25,391-23,748 51,284 63,407 72,776 Tax 5,002 8,453 9,201 8,194-15,241 16,743 18,311 20,934 Tax Rate (%) 39.0 43.6 70.3 32.3 64.2 32.6 28.9 28.8 Min. Int. & Assoc. Share 189-343 504 748 950 64-469 -469 Reported PAT 5,098 9,352 3,232 16,191-9,599 35,670 48,746 55,492 Adjusted PAT 14,844 11,091 9,322 18,006-84 35,798 47,808 54,554 Change (%) -11.6-25.3-16.0 93.2-100.5-42,485.0 33.6 14.1 Balance Sheet (INR Million) Share Capital 2,231 2,231 2,417 2,417 2,417 3,013 3,013 3,013 Reserves 162,474 168,416 209,322 220,479 185,032 223,463 262,196 310,645 Net Worth 164,705 170,647 211,739 222,896 187,449 226,476 265,210 313,658 Debt 293,907 293,909 436,858 496,419 513,038 533,507 533,507 533,507 Deferred Tax 27,250 32,720 21,234 28,894 39,123 30,736 36,365 42,744 Total Capital Employed 488,039 499,248 671,502 749,186 739,678 788,262 832,156 886,514 Gross Fixed Assets 426,895 458,676 612,979 701,889 789,575 849,575 889,575 909,575 Less: Acc Depreciation 88,775 111,508 142,520 180,126 226,239 261,393 299,584 339,419 Net Fixed Assets 338,121 347,168 470,459 521,763 563,336 588,182 589,991 570,156 Capital WIP 35,703 58,979 93,998 82,653 69,040 43,631 83,631 143,631 Investments 18,856 16,064 5,947 5,990 6,184 10,670 10,670 10,670 Current Assets 124,582 152,917 205,995 246,134 207,727 247,522 252,719 268,090 Inventory 57,893 54,952 81,551 110,090 84,034 113,950 120,479 123,534 Debtors 15,394 21,063 22,924 24,998 28,016 41,494 29,259 30,001 Cash & Bank 32,510 17,969 7,310 19,136 7,340 17,852 28,755 40,329 Loans & Adv, Others 18,786 58,933 94,209 91,910 88,337 74,226 74,226 74,226 Curr Liabs & Provns 29,223 75,880 104,897 107,353 106,610 92,145 95,257 96,436 Curr. Liabilities 26,565 30,858 44,501 39,560 44,051 43,358 46,470 47,649 Provisions 2,659 45,022 60,397 67,794 62,558 48,787 48,787 48,787 Net Current Assets 95,359 77,037 101,097 138,781 101,117 155,377 157,462 171,655 Total Assets 488,039 499,248 671,502 749,186 739,678 797,860 841,754 896,112 22 June 2017 6

Financials and Valuations Ratios Basic (INR) EPS 6.7 5.0 3.9 7.4 0.0 14.8 19.8 22.6 Cash EPS 12.2 14.9 14.8 21.3 9.7 28.8 34.5 37.9 Book Value 73.8 76.5 87.6 92.2 77.5 93.7 109.7 129.8 DPS 0.8 1.0 1.1 1.1 1.1 2.3 1.2 1.2 Valuation(x) P/E 26.7-5695.3 13.4 10.1 8.8 Cash P/E 9.3 20.6 6.9 5.8 5.2 Price / Book Value 2.2 2.6 2.1 1.8 1.5 EV/Sales 1.8 2.4 1.8 1.6 1.5 EV/EBITDA 10.2 16.2 8.1 7.2 6.7 EV/ton 1,303 1,245 1,005 954 909 Dividend Yield (%) 0.6 0.6 1.1 0.6 0.6 Profitability Ratios (%) RoE 9.1 6.6 4.7 8.3 0.0 17.3 19.4 18.8 RoCE 5.9 5.7 6.9 5.7 2.7 7.9 8.8 8.9 RoIC 8 7 8 7 3 9 9 10 Turnover Ratios (%) Asset Turnover (x) 0.7 0.8 0.8 0.7 0.6 0.7 0.7 0.7 Inventory (No. of Days) 61 52 58 76 73 75 70 70 Debtors (No. of Days) 16 20 16 17 24 27 17 17 Leverage Ratios (%) Net Debt/Equity (x) 1.6 1.6 2.0 2.1 2.7 2.3 1.9 1.6 Cash Flow Statement (INR Million) Adjusted EBITDA 61,019 65,039 91,655 94,023 60,730 122,598 137,835 146,452 Non cash opr. exp (inc) -11,202-7,379-26,487-5,522 2,172-469 -469-469 (Inc)/Dec in Wkg. Cap. -10,622 5,888-35,195-11,748 6,189-44,087 8,818-2,619 Tax Paid -4,071-5,105-4,038-7,728-2,055-10,257-12,681-14,555 Other operating activities 0 0 0 0 0 0 0 0 CF from Op. Activity 35,124 58,442 25,935 69,025 67,035 67,785 133,503 128,809 (Inc)/Dec in FA & CWIP -40,795-56,301-57,629-67,206-51,787-34,591-80,000-80,000 Free cash flows -5,671 2,142-31,693 1,819 15,249 33,194 53,503 48,809 (Pur)/Sale of Invt 808 774 176 702-1 16,589 0 0 Others 7,332-9,547-12,146 10,996 709 1,521 3,396 3,485 CF from Inv. Activity -32,655-65,074-69,599-55,509-51,079-16,480-76,604-76,515 Inc/(Dec) in Net Worth 0 0 0 0 0 0 0 0 Inc / (Dec) in Debt 21,909 9,546 60,290 27,373 3,781 0 0 0 Interest Paid -11,430-15,186-24,131-25,626-27,997-37,681-39,633-37,327 Divd Paid (incl Tax) & Others -3,501-2,269-3,155-3,437-3,536-3,111-6,363-3,394 CF from Fin. Activity 6,978-7,909 33,005-1,691-27,752-40,792-45,996-40,721 Inc/(Dec) in Cash 9,447-14,541-10,659 11,826-11,796 10,512 10,903 11,574 Add: Opening Balance 23,063 32,510 17,969 7,310 19,136 7,340 17,852 28,755 Closing Balance 32,510 17,969 7,310 19,136 7,340 17,852 28,755 40,329 22 June 2017 7

22 June 2017 Sector Update Metals/Utilities Update Sector: Metals Jindal Steel & Power BSE SENSEX S&P CNX 31,284 9,634 Stock Info Bloomberg JSP IN Equity Shares (m) 915 52-Week Range (INR) 135/61 1, 6, 12 Rel. Per (%) 9/61/71 M.Cap. (INR b) 116.3 M.Cap. (USD b) 1.8 Avg Val ( INRm)/Vol m 1274 Free float (%) 38.1 Financials Snapshot (INR b) Y/E MAR 2017 2018E 2019E Net Sales 216.2 254.2 313.4 EBITDA 46.6 61.0 78.5 PAT -19.1-14.7-2.3 EPS (INR) -20.9-16.0-2.5 Gr. (%) 14.8-23.2-84.3 BV/Sh (INR) 328.5 312.0 309.0 RoE (%) -7.9-5.0-0.8 RoCE (%) 1.0 1.9 3.9 P/E (x) -6.1-7.9-50.3 EV/EBITDA (x) 12.3 9.5 6.7 Shareholding pattern (%) As On Mar-17 Dec-16 Mar-16 Promoter 61.9 61.9 61.9 DII 4.4 1.8 2.8 FII 15.2 17.6 18.3 Others 18.5 18.7 17.0 FII Includes depository receipts Stock Performance (1-year) CMP: INR127 TP: INR184 (+45%) Buy Strong steel volume growth to drive turnaround Angul expansion on track; Maintain Buy Capacity expansion in steel at Angul to drive strong volumes growth Steel mill expansion at Angul is progressing well, and once completed, JSP s India steel capacity would increase from ~5mt to ~8mt. The blast furnace and the iron ore/coke making facilities were recently commissioned in May 2017. The BOF is on track for completion by Sep/Oct 2017. The new blast furnace would correct the hot metal mix (thereby improving utilization), reduce operating cost and leverage the existing infrastructure to drive turnaround at Angul. We estimate Indian business steel sales CAGR of 32% over FY17-19E to 5.8mt, led by capacity expansion. Standalone EBITDA CAGR is estimated at 33% over the same period to INR51b, significantly improving the sustainability and outlook of the India steel business. Power benefiting from lower coal cost; sale of asset to boost cash flows The sale of Tamnar 1,000MW (EUP1) to JSW Energy at INR40b would boost cash flows and drive deleveraging. The sale of the plant is value-accretive, as the earnings outlook for the plant is weak due to an oversupplied power market. The remaining 2,400MW has highly lucrative PPAs for 750MW, of which 150MW will start in October 2017, driving earnings growth. JSP is also benefiting from a reduction in coal cost due to quality adjustments by Coal India and a recovery of statutory charges like cess and royalties as part of tariff. Being one of the lowest-cost power producers due to its locational advantage, JSP is also able to make the best of favorable opportunities in the merchant power market. It achieved PLF of ~90% in April-May 2017 at EUP1 on the back of strong seasonal demand. The higher PLFs were also aided by seasonally high merchant power prices. Performance of overseas assets improving The Oman steel plant is turning around on improving product mix and benefit of low-cost gas supplies. Margins in 4QFY17 improved to USD85/t, led by higher steel spreads and an improving product mix on commissioning of the new bar mill. Increasing utilization of bar mill (~50% in 4QFY17) would drive further product mix benefit. The overseas coal assets remain exposed to movement in coking coal prices. The operations are sustainable at coking coal prices of USD140-150/t, which, in our view, is the close to the bottom for coking coal prices. With EBITDA runrate of USD120-130m, the overseas debt of USD2b is serviceable. 22 June 2017 8

Sharp turnaround in cash profit; Maintain Buy We expect consolidated EBITDA CAGR of 32% to INR78b over FY17-19. Although adjusted PAT would remain negative due to bloated depreciation on massive asset revaluation, there will be a sharp turnaround in cash profits, which would drive re-rating. The Angul site can accommodate much larger 12mtpa capacity, which implies that new capacity addition would require low specific capex, shorter execution cycle, and deliver superior IRR. The site is strategically located in an oversupplied iron ore region and is close to ports. While there are some risks (steel and coking coal prices, slower production ramp-up) to our estimates, there could be an upside if any of the several anticipated events (access to iron ore inventories at Sarda mines, captive iron ore mines in auction, PPA for idle 1,500MW capacity, etc.) play out. The stock trades at attractive 6.7x FY19E EV/EBITDA. We value the stock at INR184/share. Maintain Buy. 22 June 2017 9

Exhibit 8: Standalone steel sales (mt) Sales (mt) 5.8 Standalone steel sales volumes to grow at 32% CAGR over FY17-19E on capacity expansion 2.8 2.9 2.9 2.9 3.4 4.1 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Standalone EBITDA to grow at ~33% CAGR to INR51b by FY19E on volume growth Exhibit 9: Standalone EBITDA (INR b) 45 37 37 EBITDA (INRb) 37 51 24 29 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Exhibit 10: Overseas ventures (INR b) Global Ventures Oman EBITDA (INR B) 2.6 4.9 3.5 3.4 7.2 3.4 4.1 7.8 6.1 9.7 9.9 8.5 8.4 0.6 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Exhibit 11: Sharp turnaround in cash profits (INR b) INR b 50 35 37 19 33 Cash profit 6 5 Adj. PAT 15 31 45-17 -19-15 -2 FY13 FY14 FY15 FY16 FY17 FY18E FY19E 22 June 2017 10

Exhibit 12: Income statement (INR m) Y/E March FY13 FY14 FY15 FY16 FY17 FY18E FY19E Net sales 198,068 200,040 201,592 194,673 216,243 254,227 313,370 Steel business (incl. CPP) 172,971 175,473 169,312 164,523 185,053 215,106 284,926 Standalone 149,547 145,440 140,994 137,865 144,492 176,984 246,323 Steel sales (kt) 2,843 2,935 2,930 3,380 3,350 4,063 5,794 Pellet sales (kt) 2,112 2,035 411 962 2,910 2,840 2,840 Oman 29,012 32,621 31,243 26,439 30,810 39,375 39,375 HBI (kt) production 1,520 1,468 1,420 1,509 1,500 1,500 1,500 Steel (kt) sales 534 1,050 1,330 1,250 1,250 Wollongong (GNM) 466 1,065 2,039 1,672 2,153 Coking coal (kt) 171 304 240 400 400 Others -5,588-2,588-3,391-846 7,713-2,925-2,925 Jindal power 25,097 24,568 32,280 30,150 31,190 39,120 28,444 Sales (Mkwh) 7,411 7,568 8,969 8,730 8,442 11,609 7,595 EBITDA 65,685 57,764 54,598 34,410 46,613 61,037 78,465 Steel business (incl. CPP) 47,773 40,941 37,618 27,810 36,663 46,881 61,170 (a) Standalone 45,126 37,420 37,057 24,392 28,877 37,162 51,291 EBITDA/t of steel 15,872 12,747 12,646 7,216 8,620 9,146 8,853 (b) Global Venture 2,647 3,522 561 3,419 7,785 9,720 9,879 1. Oman 4,903 3,404 7,235 4,057 6,139 8,480 8,410 EBITDA/t of HBI 3,226 2,318 5,096 2,688 4,093 5,654 5,607 2. Wollongong (GNM) -2,794-196 1,141 835 1,145 EBITDA/t of coal -644 3. Others -2,256 117-3,879-442 506 405 324 Jindal power 17,912 16,823 16,980 6,600 9,950 14,156 17,295 EBITDA (INR/kwh) 2.4 2.2 1.9 0.8 1.2 1.2 2.3 Depn. & Amortization 15,392 18,292 27,328 28,194 39,490 46,075 47,458 EBIT 50,293 39,472 27,270 6,216 7,122 14,962 31,008 Net Interest 7,582 15,008 25,837 32,808 34,240 30,034 33,702 Other income 1,364 656 2,256 2,200 411 0 0 PBT before EO 44,076 25,120 3,689-24,391-26,706-15,073-2,695 Adjusted PAT 34,842 19,104 6,335-16,662-19,128-14,690-2,312 Cash Profit 50,235 37,396 32,782 4,769 15,336 31,386 45,146 Exhibit 13: Jindal Steel & Power - Target price derivation YEAR FY13 FY14 FY15 FY16 FY17 FY18E FY19E Steel Business A. EBITDA 47,773 40,941 37,618 27,810 36,663 46,881 61,170 B. Target EV/EBITDA(x) 6.5 6.5 6.5 C. EV (AxB) 238,307 304,729 397,604 Jindal Power (JPL) D. PV of JPL's FCFF 168,848 167,418 163,330 Consolidated EBITDA 65,685 57,764 54,598 34,410 46,613 61,037 78,465 E. Enterprise Value (C+D) 407,156 472,147 560,934 F. Net Debt 244,180 353,529 443,617 463,928 454,900 465,743 409,349 G. CWIP 192,303 178,112 90,728 118,266 97,162 52,162 17,162 H. Discount on CWIP (%) Equity Value (E-F+G*(1-H%)) 58,565 168,746 Target price (INR/share) 64 184 22 June 2017 11

Financials and Valuations Income Statement (INR Million) Net Sales 182,086 198,068 200,040 201,592 194,673 216,243 254,227 313,370 Change (%) 38.9 8.8 1.0 0.8-3.4 11.1 17.6 23.3 EBITDA 68,868 65,685 57,764 54,598 34,410 46,613 61,037 78,465 EBITDA Margin (%) 37.8 33.2 28.9 27.1 17.7 21.6 24.0 25.0 Depreciation 13,865 15,392 18,292 27,328 28,194 39,490 46,075 47,458 EBIT 55,003 50,293 39,472 27,270 6,216 7,122 14,962 31,008 Interest 3,600 7,582 15,008 25,837 32,808 34,240 30,034 33,702 Other Income 1,419 1,364 656 2,256 2,200 411 0 0 Extraordinary items -936-5,741 0-19,116-2,358-3,723 0 0 PBT 51,886 38,335 25,120-15,428-26,750-30,429-15,073-2,695 Tax 11,863 9,218 6,182-882 -6,763-5,027 110 110 Tax Rate (%) 22.9 24.0 24.6 5.7 25.3 16.5-0.7-4.1 Min. Int. & Assoc. Share 574 417-140 -1,738-980 -2,524-91 -91 Reported PAT 39,649 29,101 19,104-12,781-19,020-22,851-14,690-2,312 Adjusted PAT 40,585 34,842 19,104 6,335-16,662-19,128-14,690-2,312 Change (%) 8.1-14.2-45.2-66.8-363.0 14.8-23.2-84.3 Balance Sheet (INR Million) Share Capital 935 935 915 915 915 915 915 915 Reserves 180,176 211,588 225,191 209,506 180,556 299,590 284,498 281,785 Net Worth 181,111 212,523 226,105 210,421 181,471 300,505 285,413 282,700 Minority Interest 3,071 5,573 10,802 8,573 8,003 6,467 6,376 6,285 Debt 170,908 246,182 363,682 455,007 470,132 459,672 467,672 467,672 Deferred Tax 11,920 13,365 14,727 20,185 13,477 53,586 53,592 53,597 Total Capital Employed 367,010 477,642 615,316 694,185 673,082 820,231 813,054 810,254 Gross Fixed Assets 223,301 267,032 466,646 612,235 627,116 871,374 946,374 961,374 Less: Acc Depreciation 58,360 74,285 122,687 151,286 178,233 217,723 251,799 287,256 Net Fixed Assets 164,940 192,747 343,959 460,949 448,883 653,651 694,576 674,118 Capital WIP 136,520 192,303 178,112 90,728 118,266 97,162 52,162 17,162 Goodwill on consolidation 918 1,543 5,930 5,485 5,485 5,670-6,330-18,330 Investments 3,776 8,089 3,418 17,852 3,577 3,677 3,677 3,677 Current Assets 143,922 176,046 209,301 180,353 159,182 145,816 153,197 224,336 Inventory 35,795 45,242 48,812 48,487 32,360 35,993 42,487 52,371 Debtors 13,068 19,541 17,724 16,907 14,292 17,166 20,895 25,756 Cash & Bank 1,492 2,001 10,153 11,391 6,204 4,772 1,929 58,323 Loans & Adv, Others 93,567 109,262 132,612 103,568 106,326 87,885 87,885 87,885 Curr Liabs & Provns 83,066 93,084 125,405 61,181 62,310 85,748 84,231 90,712 Net Current Assets 60,856 82,962 83,896 119,172 96,872 60,068 68,966 133,624 Total Assets 367,010 477,642 615,316 694,185 673,082 820,227 813,050 810,250 22 June 2017 12

Financials and Valuations Ratios Basic (INR) EPS 43.4 37.2 20.9 6.9-18.2-20.9-16.0-2.5 Cash EPS 57.6 47.6 40.7 14.0 9.0 15.4 33.8 48.8 Book Value 193.7 227.3 247.1 230.0 198.4 328.5 312.0 309.0 DPS 1.6 1.6 1.6 1.6 0.0 0.0 0.0 0.0 Payout (incl. Div. Tax.) 3.8 4.4 7.9 27.0 0.0 0.0 0.0 0.0 Valuation(x) P/E 18.4-7.0-6.1-7.9-50.3 Price / Book Value 0.6 0.6 0.4 0.4 0.4 EV/Sales 2.8 3.0 2.6 2.3 1.7 EV/EBITDA 10.3 16.9 12.3 9.5 6.7 Dividend Yield (%) 1.3 0.0 0.0 0.0 0.0 Profitability Ratios (%) RoE 25.2 17.7 8.8 2.9-8.5-7.9-5.0-0.8 RoCE 17.2 12.3 7.3 4.5 1.2 1.0 1.9 3.9 RoIC (pre-tax) 26.5 20.2 11.4 5.5 1.1 1.1 2.0 4.1 Turnover Ratios (%) Asset Turnover (x) 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.4 Debtors (No. of Days) 26 36 32 31 27 29 30 30 Inventory (No. of Days) 72 83 89 88 61 61 61 61 Creditors (No. of Days) 58 58 90 70 79 50 40 40 Leverage Ratios (%) Net Debt/Equity (x) 0.9 1.1 1.6 2.1 2.6 1.5 1.6 1.4 Cash Flow Statement (INR Million) Adjusted EBITDA 68,868 65,685 57,764 54,598 34,410 46,613 61,037 78,465 Non cash opr. exp (inc) 1,160 628-2,456-21,600-4,581-6,257 0 0 (Inc)/Dec in Wkg. Cap. -20,385-23,207 12,816-18,154 11,762 35,372-11,741-8,264 Tax Paid -10,421-7,884-8,337-3,393-170 5,027-105 -105 Other operating activities 0 0 0 0 0 0 0 0 CF from Op. Activity 39,221 35,223 59,786 11,451 41,422 80,754 49,191 70,097 (Inc)/Dec in FA & CWIP -60,604-84,012-141,525-50,964-39,500-25,000-30,000-20,000 Free cash flows -21,383-48,789-81,739-39,513 1,922 55,754 19,191 50,097 (Pur)/Sale of Invt 19-3,405 4,898-13,430 15,904 0 0 0 Others -4,138-8,408-3,809-970 3,706 411 0 40,000 CF from Inv. Activity -64,723-95,825-140,437-65,365-19,889-24,589-30,000 20,000 Inc/(Dec) in Net Worth 38 0-3,986 5 0 0 0 0 Inc / (Dec) in Debt 33,044 75,274 115,838 90,704 9,230 25,000 8,000 0 Interest Paid -9,193-15,713-21,775-34,381-35,941-34,240-30,034-33,702 Divd Paid (incl Tax) & Others -1,536 1,551-1,276-1,177-8 0 0 0 CF from Fin. Activity 22,354 61,111 88,802 55,151-26,719-9,240-22,034-33,702 Inc/(Dec) in Cash -3,148 509 8,152 1,238-5,187 46,926-2,843 56,394 Add: Opening Balance 4,640 1,492 2,001 10,153 11,391 6,204 4,772 1,929 Closing Balance 1,492 2,001 10,153 11,391 6,204 53,130 1,929 58,323 22 June 2017 13

22 June 2017 Sector Update Metals/Utilities Update Sector: Metals Tata Steel BSE SENSEX S&P CNX 31,284 9,634 Stock Info Bloomberg TATA IN Equity Shares (m) 971 52-Week Range (INR) 525/297 1, 6, 12 Rel. Per (%) 3/12/38 M.Cap. (INR b) 504.4 M.Cap. (USD b) 7.8 Avg Val ( INRm)/Vol m 2863.0 Free float (%) 68.7 Financials Snapshot (INR b) Y/E MAR 2017 2018E 2019E Net Sales 1,135 1,220 1,232 EBITDA 168 185 203 PAT 36 49 65 EPS (INR) 37.0 50.2 66.5 Gr. (%) 382.0 35.7 32.5 BV/Sh (INR) 330 362 418 RoE (%) 15.4 14.5 17.1 RoCE (%) 9.2 9.7 10.4 P/E (x) 14.0 10.3 7.8 EV/EBITDA (x) 7.5 6.8 6.1 Shareholding pattern (%) As On Mar-17 Dec-16 Mar-16 Promoter 31.4 31.4 31.4 DII 30.6 30.8 26.7 FII 14.1 13.1 13.2 Others 23.9 24.8 28.8 FII Includes depository receipts Stock Performance (1-year) CMP: INR519 TP: INR581(+12%) Neutral FCF generation after seven years Raising TP; upgrading to Neutral Structural improvements Tata Steel s (TATA) business is structurally improving with (1) exit from weak businesses of long products and specialty businesses in the UK, (2) persistence to de-risk the British Pension Scheme and (3) turnaround at the highly profitable Indian business, aided by import curbs in the country. De-risking from pension scheme TATA has taken a number of steps to de-risk the British Pension Scheme (BPS) from future deficits. Future accruals for existing employees have been converted from defined benefit to defined contribution. In a regulator assisted arrangement (RAA), BPS will cap annual increments such that the scheme is de-risked from future deficits. In exchange, TATA will pay GBP550m and 33% equity in TSUK (UK business). We are now factoring in the payout in cash flows in FY18E. To generate free cash flow after seven years As TATA sells 84m shares in Tata Motors, it will fetch ~INR38b, which will partly fund the expected payout of GBP550m toward de-risking BPS in FY18E. After a hiatus of seven years, TATA will generate free cash flow in FY18E, which will drive de-leveraging of the balance sheet while investing in growth. Operating parameters have improved materially TATA has surprised us positively on its operating efficiencies at TSI (India business), which helped it contain the impact of spike in coking coal prices in 2HFY17. Coke rate at 360kg/thm is the best in the industry, which has significantly improved over the last two years (Exhibit 14). Compelling case for expansion at KPO On improved visibility of FCF, we expect TATA to announce capacity expansion at KPO (Kalinganagar) to leverage the infrastructure and captive iron ore mines. As discussed earlier in the report, there is a compelling case for building new globally competitive capacities in India, as we expect the demand-supply gap to start emerging as early as FY21. We are now factoring in capex of INR240b over FY19-21E, which will drive volume growth at TSI in FY22E. TSI play on steel prices TSI, being integrated with captive iron ore mines, benefited from a rally in steel prices in FY17 as the steel market got support from monetary expansion in China. Sustainability of monetary expansion, however, is uncertain. The Indian steel market has witnessed correction in steel prices in 1QFY18 due to seasonal demand factors and volatility in Chinese steel prices. 22 June 2017 14

Rolling over TP to FY19E; upgrading to Neutral We are raising FY19E SOTP by INR51/share to INR581/share to factor in translation gains on forex debt (FY19E year-end USD/INR to INR67 from INR70.9) and value unlocking from the sale of Tata Motor shares (removal of 20% holding company discount and savings in interest expense). While we value the Indian business at 6.5xEV/EBITDA, we value European business at lower 5x EV/EBITDA because of low EBITDA/t and higher requirements of sustenance capex. We are also adjusting INR22b equity value for the 33% anti-embarrassment stake in TS-UK, which TATA is giving away to the pension fund in exchange for de-risking the scheme. We are rolling over the target price to FY19E, and thus, increasing it to INR581/share based on FY19E SOTP, upside 12%. TATA has now largely plugged the cash flow leakages in Europe, but current valuations are already factoring in strong margins. Steel markets and prices are highly dependent on monetary expansion in China, and remain the key source of risk as steel consumption is close to peak. TATA s overall cash flows have high leverage to steel prices as India business is fully integrated. We are upgrading the stock to Neutral. Tata Sons stake is worth INR135/share for TATA TATA also holds 12,375 shares of Tata Sons. Each share is worth ~INR11m if quoted investments are taken at market value and unquoted at book value adjusting for borrowings. This translates into value of INR135/share for TATA. This implies a significant upside to our TP. We have ignored it in our SOTP valuations because it creates a valuation loop, as both TATA and Tata Sons drive value from each other. 22 June 2017 15

Exhibit 14: Coke rate (kg/thm) Tata Steel has sharply improved its coke rate consumption through efficiency and higher use of PCI coke, driving the positive surprise 487 Tata Steel 496 483 SAIL 443 455 468 479 512 512 455 504 443 489 380 473 360 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Exhibit 15: Free cash flow after seven years (INR b) 19 8 37 1 FCF - INR b 17 41 15 16 40-71 -46-56 -72-73 -41-18 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E FY21E FY22E Exhibit 16: India steel sales mt India steel sales (mt) 6.4 6.6 7.5 8.5 8.7 9.5 11.0 12.4 12.8 Exhibit 17: Europe EBITDA margins USD/t EU EBITDA/t - USD 52 51 36 66 68 75 16 11-8 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E Margins have improved on sale of long products business, currency benefit and higher steel spreads. 22 June 2017 16

Exhibit 18: EV/EBITDA band EV/EBDITA(x) Peak(x) Avg(x) Median(x) Min(x) 16.0 14.2 12.0 8.0 6.6 7.3 4.0 0.0 1.6 6.3 Jun-02 Aug-03 Oct-04 Dec-05 Feb-07 Mar-08 May-09 Jul-10 Sep-11 Nov-12 Dec-13 Feb-15 Apr-16 Jun-17 Exhibit 19: Tata Steel - SOTP 2015 2016 2017 2018E 2019E 2020E 2021E 2022E India EBITDA per ton (USD) 187 115 161 167 171 161 161 165 EBITDA per ton (INR) 11,444 7,557 10,818 10,926 11,485 10,811 10,782 11,038 Sales (m tons) 8.7 9.5 11.0 12.4 12.8 12.9 13.0 14.5 EBITDA-India 100,661 73,271 118,760 135,612 146,822 139,596 140,611 160,501 Target EBITDA multiple 6.5 6.5 6.5 6.5 6.5 6.5 6.5 6.5 EV (India) - (a) 654,295 476,258 771,937 881,479 954,345 907,376 913,971 1,043,260 INR/share 674 490 795 907 982 934 941 1,074 TSE and other subs. EBITDA per ton (USD) 26 3 56 58 64 64 64 64 Sales (m tons) 17.6 16.4 13.0 13.0 13.1 13.1 13.2 13.3 EBITDA -11,791 3,739 49,005 49,626 54,675 54,948 55,223 55,499 Target EBITDA multiple 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 EV (TSE) - (b) -58,953 18,695 245,024 248,132 273,375 274,742 276,115 277,496 INR/share -61 19 252 255 281 283 284 286 33% equity in TSE UK ( c ) 18,920 21,591 21,591 21,591 21,591 Target EV (c=a+b-c) 595,342 494,953 1,016,960 1,110,692 1,206,128 1,160,526 1,168,495 1,299,164 Net Debt (d) 727,641 769,329 746,948 756,159 723,916 713,637 701,410 665,836 INR/share 749 792 769 778 745 735 722 685 CWIP (e) 286,781 354,879 157,841 123,121 134,501 199,501 264,501 179,501 Sustenance CWIP (s) 55,000 55,000 55,000 55,000 55,000 Investments (f) 3,193 3,193 3,193 3,193 3,193 INR/share 3 3 3 3 3 (f1) Discount (%) 20 20 20 20 20 TP (c-d+e-s+f*(1-f1%)) 425,209 564,268 593,945 679,141 760,384 Target Price (INR /share) 438 581 611 699 783 Source: MOSL 22 June 2017 17

Financials and Valuations Income Statement (INR Million) Net Sales 1,328,997 1,347,115 1,486,136 1,395,037 1,171,516 1,134,532 1,219,938 1,231,727 Change (%) 11.9 1.4 10.3-6.1-16.0-3.2 7.5 1.0 EBITDA 124,168 123,212 164,110 127,758 75,857 167,764 185,239 202,664 EBITDA Margin (%) 9.3 9.1 11.0 9.2 6.5 14.8 15.2 16.5 Depreciation 45,167 55,753 58,412 59,436 50,818 56,784 58,722 60,784 EBIT 79,001 67,459 105,698 68,322 25,038 110,981 126,516 141,880 Interest 42,501 39,681 43,368 48,478 41,286 50,723 52,291 52,733 Other Income 15,730 4,792 5,168 7,962 39,257 5,274 5,186 5,028 Extraordinary items 33,619-73,899-276 -43,980-39,749-79,512 0 0 PBT 85,850-41,330 67,221-16,175-16,740-13,981 79,412 94,175 Tax 36,365 32,294 30,582 23,380 15,050 27,782 28,808 27,692 Tax Rate (%) 42.4-78.1 45.5-144.5-89.9-198.7 36.3 29.4 Min. Int. & Assoc. Share -1,731-2,145-80 -450-1,089 84 23 61 Reported PAT 51,673-72,375 34,203-41,204-32,292-43,568 48,771 64,612 Adjusted PAT 18,054 1,524 34,479 2,776 7,457 35,944 48,771 64,612 Change (%) -69.8-91.6 2,162.2-91.9 168.6 382.0 35.7 32.5 Balance Sheet (INR Million) Share Capital 9,714 9,714 9,714 9,714 9,702 9,702 9,702 9,702 Reserves 416,623 332,008 395,606 303,780 275,086 345,741 376,481 431,520 Net Worth 426,337 341,722 405,320 313,494 284,789 355,443 386,183 441,222 Minority Interest 10,912 16,694 17,377 17,039 16,542 16,017 16,040 16,101 Debt 643,029 702,707 837,805 828,887 883,646 852,890 866,803 870,932 Deferred Tax 24,424 31,185 25,550 28,618 28,830 100,301 109,903 115,426 Total Capital Employed 1,104,701 1,092,308 1,286,052 1,188,037 1,213,807 1,324,651 1,378,930 1,443,681 Gross Fixed Assets 1,133,047 1,352,650 1,570,087 1,512,105 1,590,548 2,063,154 2,183,797 2,259,643 Less: Acc Depreciation 712,043 798,379 969,844 965,176 1,121,252 1,178,036 1,236,758 1,297,542 Net Fixed Assets 421,003 554,271 600,242 546,928 469,296 885,118 947,039 962,101 Goodwill on consolidation 173,546 130,650 157,488 134,075 137,194 34,947 34,947 34,947 Capital WIP 200,280 137,862 259,564 286,781 354,879 157,841 123,121 134,501 Investments 26,229 24,974 24,251 20,804 20,845 68,636 68,636 68,636 Current Assets 646,849 620,943 674,492 600,639 650,068 586,790 621,977 662,159 Inventory 255,980 240,912 268,800 251,499 203,560 248,038 267,384 269,968 Debtors 148,785 139,940 160,058 133,099 117,012 115,868 127,007 128,235 Cash & Bank 121,972 106,200 112,729 101,246 114,317 105,942 110,645 147,016 Loans & Adv, Others 120,112 133,892 132,906 114,796 215,180 116,942 116,942 116,942 Curr Liabs & Provns 363,205 376,391 429,985 401,191 418,475 408,682 416,790 418,664 Net Current Assets 283,644 244,552 244,508 199,448 231,594 178,108 205,187 243,496 Total Assets 1,104,701 1,092,308 1,286,052 1,188,037 1,213,807 1,324,651 1,378,930 1,443,681 22 June 2017 18

Financials and Valuations Ratios Basic (INR) EPS 18.6 1.6 35.5 2.9 7.7 37.0 50.2 66.5 Cash EPS 97.4-18.4 97.8 20.5 19.6 15.5 112.5 131.0 Book Value 260.2 217.3 255.1 184.7 151.9 329.9 361.6 418.2 DPS 12.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 Payout (incl. Div. Tax.) 74.6 886.5 39.2 407.4 124.2 25.8 19.0 14.3 Valuation(x) P/E 181.6 67.6 14.0 10.3 7.8 Price / Book Value 2.8 3.4 1.6 1.4 1.2 EV/Sales 0.9 1.1 1.1 1.0 1.0 EV/EBITDA 9.6 16.8 7.5 6.8 6.1 Dividend Yield (%) 1.5 1.5 1.5 1.5 1.5 Profitability Ratios (%) RoE 7.9 0.7 15.0 1.3 4.6 15.4 14.5 17.1 RoCE 9.2 6.7 9.3 6.1 5.4 9.2 9.7 10.4 RoIC 10.9 8.5 12.3 8.2 3.3 12.9 12.2 13.1 Turnover Ratios (%) Asset Turnover (x) 1.2 1.2 1.2 1.2 1.0 0.9 0.9 0.9 Debtors (No. of Days) 41 38 39 35 36 37 38 38 Inventory (No. of Days) 70 65 66 66 63 80 80 80 Creditors (No. of Days) 50 54 56 50 64 60 58 58 Leverage Ratios (%) Net Debt/Equity (x) 2.1 2.8 2.9 4.1 5.2 2.3 2.2 1.8 Cash Flow Statement (INR Million) Adjusted EBITDA 124,168 123,212 164,110 127,758 75,857 167,764 185,239 202,664 Non cash opr. exp (inc) 13,603 4,424 10,172 11,797 5,894 7,966 0 0 (Inc)/Dec in Wkg. Cap. 11,590 31,293-12,696 3,514 54,332-48,430-22,376-1,938 Tax Paid -36,524-25,690-30,127-24,270-16,450-18,350-19,206-22,169 Other operating activities 0 0 0 0 0 0 0 0 CF from Op. Activity 112,838 133,239 131,459 118,798 119,632 108,950 143,657 178,557 (Inc)/Dec in FA & CWIP -121,360-154,715-164,201-134,924-114,859-77,160-72,960-83,380 Free cash flows -8,523-21,476-32,742-16,126 4,773 31,790 70,697 95,177 (Pur)/Sale of Invt 58,320 20,569 14,356 28,339 39,798-6,770 0 0 Others 15,035 5,582 14,770 2,476 7,784-2,815-2,602 5,028 CF from Inv. Activity -48,006-128,564-135,075-104,109-67,277-86,745-75,562-78,352 Inc/(Dec) in Net Worth 6,045 2,646 156 167 550 0 0 0 Inc / (Dec) in Debt -39,803 25,153 58,658 42,119 15,329 28,850 0 0 Interest Paid -37,646-34,657-39,424-56,938-45,669-49,930-54,089-54,532 Divd Paid (incl Tax) & Others -11,639-13,590-9,244-11,520-9,494-9,500-9,302-9,302 CF from Fin. Activity -83,043-20,448 10,146-26,172-39,284-30,580-63,391-63,834 Inc/(Dec) in Cash -18,212-15,772 6,529-11,483 13,071-8,375 4,703 36,371 Add: Opening Balance 140,183 121,972 106,200 112,729 101,246 114,317 105,942 110,645 Closing Balance 121,972 106,200 112,729 101,246 114,317 105,942 110,645 147,016 22 June 2017 19

22 June 2017 Sector Update Metals Update Sector: Utilities Coal India BSE SENSEX S&P CNX 31,284 9,634 CMP: INR254 TP: INR290(+14%) Buy Realization under pressure on grade adjustment and mix Cut estimates by 4%/10% for FY18/19; Attractive dividend yield; Buy Stock Info Bloomberg COAL IN Equity Shares (m) 6,207 52-Week Range (INR) 350/252 1, 6, 12 Rel. Per (%) -12/-33/-36 M.Cap. (INR b) 1,570.5 M.Cap. (USD b) 24.3 Avg Val ( INRm) 1240 Free float (%) 21.1 Financials Snapshot (INR b) Y/E MAR 2017 2018E 2019E Net Sales 755.7 808.9 854.9 EBITDA 122.6 169.1 179.6 PAT 92.7 109.2 115.7 EPS (INR) 14.9 17.6 18.6 Gr. (%) -33.9 17.9 5.9 BV/Sh (INR) 39.5 39.6 39.7 RoE (%) 37.8 44.5 47.0 RoCE (%) 33.1 44.4 46.9 P/E (x) 16.9 14.4 13.6 EV/EBITDA (x) 7.9 5.8 6.1 Shareholding pattern (%) As On Mar-17 Dec-16 Mar-16 Promoter 78.9 79.8 79.7 DII 11.7 10.8 8.6 FII 6.5 6.9 8.5 Others 3.0 2.5 3.2 FII Includes depository receipts Stock Performance (1-year) The new coal distribution policy SHATKI favors coal supply to the power sector at notified prices. This would lead to a decline in the share of e-auction volumes to 16% from 20% estimated earlier for FY19 (and from ~17% in FY17). Grade adjustments were implemented in a phased manner in FY17. We expect ACQ realization to decline ~2% YoY in FY18 (as against ~1% increase earlier) as grade adjustments are gradually accommodated. E-auction prices are estimated to increase, led by higher international coal prices and a favorable mix within e-auction. Volumes are estimated to grow at a CAGR of 7% over FY17-20E, driven by power generation growth, end to de-stocking and import substitution. We have cut PAT estimates by 4%/10% for FY18/19, considering the impact of grade adjustments and a weaker mix. We estimate earnings to have bottomed out in FY17. PAT is estimated to grow at ~13% CAGR over FY17-20, driven by volume growth and operating leverage, and no increase in realization. We maintain Buy with a revised TP of INR290. The stock offers an attractive dividend yield of ~6% for FY18/19E. Volume mix would be impacted under the new coal distribution policy E-auction coal volumes would be impacted under the new coal linkage distribution policy SHAKTI, as power plants (which have PPAs but no coal linkages, and were sourcing coal from e-auctions) can now seek linkages. Linkage coal would be offered at notified prices, at a discount to e-auction coal. There are ~10GW such plants, which are estimated to be consuming ~20mt coal from e-auctions. We expect to see the impact from FY19 (shift from e- auction to notified ACQ volumes) as the SHAKTI policy is implemented. Resultantly, we expect the e-auction volume share to decline from ~17% in FY17 to ~16% in FY19, as against our earlier estimate of an increase to ~20%. The SHAKTI coal policy also supports supply of coal to the power sector at notified prices by gradually seeking to relax the limit of 75% of the requirement that Coal India could supply under a linkage. This is likely to lead to slowerthan-expected growth in e-auction coal volumes, given that the power sector is the key consumer of coal. Realization would be under pressure due to grade adjustments Coal India s ACQ realization declined ~1% in FY17, offsetting the price hike of 7-9%. Realization suffered as the government enforced transparency in the supply of coal. Coal India used to bill on declared grade of the coal mines. As grades were based on limited sampling, the results of declared grades were significantly different (higher) than the actual grade of coal supplied. 22 June 2017 20

NTPC, one of the largest consumers of Coal India, was shifted to third-party sampling based coal billing w.e.f. 1 January 2016. The other power sector consumers were gradually shifted w.e.f. 1 October 2016. On the other hand, non-power consumers were included w.e.f. 1 April 2017. We expect ACQ realization to decline ~2% YoY in FY18, as against our earlier estimate of ~1% increase, as the impact of grade adjustment is accommodated. Coal India is also losing incentive income it earns on supplying volumes above a threshold under a linkage. Multiple linkages of a single consumer are now clubbed. This increases the available threshold for the customer and impacts Coal India s incentive income. E-auction coal prices are estimated to increase from INR1,536 per ton in FY17 to INR1,700 per ton over FY18-20 due to higher international coal prices and good demand for its higher-grade coal (which improves mix and thus realization). We have marginally upgraded e-auction realization estimate by INR50/t as power sector volumes that fetched lower premiums in e-auction are moving to ACQ category, improving the mix of the remaining volumes. We estimate average realization to be broadly flat at INR1,395/t in FY18 as the decline in ACQ realization is offset by higher e-auction and a better mix. Realization would decline ~1% YoY to INR1,383/t in FY19 on a weaker mix. Volume growth to recover led by end of de-stocking, higher power generation and import substitution We expect dispatches to grow at CAGR of ~7% over FY17-20 to 657mt, driven by an increase in power generation, end of destocking, and import substitution. Dispatches grew 1.6% YoY in FY17 due to de-stocking in the system as the consumers got comfortable on the availability of coal. Volumes were also impacted by an increase in petcoke consumption due to lower prices. We believe de-stocking is now largely behind as inventories are close to sustainable levels. Increase in petcoke prices and the government s drive to substitute imported coal will also aid dispatch growth. Cost control is key; Expect no negative surprises in wage negotiation Coal India has taken a wage hike provision of ~INR30b in lieu of the ongoing wage negotiation. The provision represents ~12-15% wage hike. While this is significantly lower than the hikes in the previous wage negotiations, we believe a higher wage hike is unlikely this time. The outlook on coal is significantly different than in the previous cycles, while Coal India s wage bill base is now significantly higher. If management is not successful in limiting the number at the current rate, there could be negative surprise to our estimates. We expect cost of production per ton to have peaked in FY17 at INR1,166. Operating leverage through volume growth is estimated to drive ~3% CAGR decline in CoP to INR1,073 over FY17-20. 22 June 2017 21

Cut estimates on lower realization; Attractive dividend yield; Buy We have cut PAT estimates by 4%/10% for FY18/19E to INR109b/INR115b due to a cut to realizations on account of grade adjustments and a weaker mix. This is partly offset by reduced cost on lower stripping ratio and CSR spend, and higher e-auction prices. We estimate earnings to have bottomed out in FY17. PAT is estimated to grow at ~13% CAGR over FY17-20, driven by volume growth and operating leverage, and no increase in realization. Clarity on the impact of grade adjustments and resolution of wage negotiation would drive re-rating of the stock. Our revised TP based on 7.5x FY19E EV/adj. EBITDA is INR290 (from INR316 earlier). Maintain Buy. The stock offers an attractive dividend yield of ~6% for FY18/19E. 22 June 2017 22

Exhibit 20: Share of total volumes % E-auction volumes will be impacted as power plants get linkage at notified prices under the new coal linkage policy 14 16 11 12 E-auction Washed Others 22 21 16 13 17 19 13 10 19 20 16 17 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E ACQ realization would be under pressure as grade adjustments are accommodated Exhibit 21: Realization INR/t 2,544 2,182 2,450 1,295 1,314 1,327 1,309 ACQ 1,839 E-auction FY13 FY14 1,301 1,536 1,276 1,700 FY15 1,275 FY16 1,700 1,277 FY17 1,700 FY18E FY19E FY20E Volumes growth would accelerate after tepid ~1% growth in FY17, led by power generation growth, end to de-stocking and import substitution Exhibit 22: Volumes mt 267 280 291 306 324 342 360 378 Production (m ton) FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 403 430 431 436 453 461 494 539 554 580 618 657 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E Cost of production has peaked out in FY17. Cost of production (ex-obr) will decline on operating leverage Exhibit 23: Cost of production INR/t 715 898 799 802 995 1,013 Cost per ton FY08 FY09 1,051 1,082 FY10 1,064 1,166 FY11 FY12 1,103 1,093 1,073 FY13 FY14 FY15 FY16 FY17 FY18E FY19E FY20E 22 June 2017 23

Exhibit 24: Adjusted P&L FY15 FY16 FY17 FY18E FY19E FY20E Revenue 740,416 779,209 777,955 832,729 880,231 938,148 Power FSA 511,009 536,328 490,545 503,103 553,476 581,150 Non Power FSA 72,085 69,518 86,056 94,655 103,260 111,865 E-auction/MoU 157,321 173,363 201,354 234,971 223,495 245,133 Sales (mt) 489 534 543 580 618 657 YoY (%) 3.8 9.2 1.6 6.8 6.6 6.3 Power FSA 385 409 380 399 439 461 Share (%) 79 76 70 69 71 70 Non Power FSA 41 40 50 55 60 65 E-auction/MoU 63 86 113 126 119 131 Revenue per ton 1,517 1,444 1,433 1,436 1,424 1,428 YoY (%) 1.4-4.8-0.8 0.2-0.8 0.3 Power FSA 1,326 1,312 1,291 1,261 1,261 1,261 Non Power FSA 1,775 1,756 1,728 1,721 1,721 1,721 E-auction/MoU 2,482 2,012 1,779 1,865 1,877 1,870 Cost of Mining (ex. OB) 529,580 568,924 633,085 639,840 675,297 705,201 CoP per ton 1,082 1,064 1,166 1,103 1,093 1,073 YoY (%) 3.0-1.6 9.5-5.4-0.9-1.8 Adjusted EBIDTA 210,836 210,285 144,870 192,889 204,934 232,947 Power FSA 93,951 101,248 47,462 62,937 73,829 86,438 Share (%) 45 48 33 33 36 37 Non Power FSA 28,150 27,390 28,000 33,981 37,697 42,096 Share (%) 13 13 19 18 18 18 E-auction/MoU 88,735 81,647 69,408 95,972 93,407 104,412 Share (%) 42 39 48 50 46 45 EBITDA per ton 431 393 267 333 332 355 Exhibit 25: Coal India - Target price derivation FY15 FY16 FY17 FY18E FY19E FY20E Adjusted EBIDTA 210,836 210,285 144,870 192,889 204,934 232,947 Target EV/EBITDA (x) 7.5 7.5 7.5 7.5 7.5 Target EV 1,577,138 1,086,527 1,446,670 1,537,004 1,747,102 Net debt -449,609-287,355-281,144-263,308-246,704 Target Equity value 2,026,748 1,373,882 1,727,814 1,800,312 1,993,807 TP (INR/share) 327 221 278 290 321 22 June 2017 24

Financials and Valuations Income Statement (INR Million) Net Sales 624,154 683,027 688,100 720,146 756,443 755,694 808,949 854,893 Change (%) 24.3 9.4 0.7 4.7 5.0-0.1 7.0 5.7 EBITDA 156,678 180,836 159,632 152,300 159,404 95,887 131,351 140,466 EBITDA Margin (%) 25.1 26.5 23.2 21.1 21.1 12.7 16.2 16.4 Depreciation 19,692 18,130 19,964 23,198 24,664 29,101 29,380 31,180 EBIT 136,986 162,707 139,668 129,102 134,740 66,787 101,971 109,285 Interest 540 452 580 73 207 4,117 3,575 3,611 Other Income 75,369 87,467 89,694 86,761 80,943 81,667 62,239 62,029 Extraordinary items 911 69 14 50 414 0 0 0 PBT 212,727 249,790 228,795 215,839 215,891 144,337 160,635 167,703 Tax 64,845 76,227 77,679 78,573 73,148 51,660 51,387 51,971 Tax Rate (%) 30.5 30.5 34.0 36.4 33.9 35.8 32.0 31.0 Min. Int. & Assoc. Share 0 0 0 0 0 0 0 0 Reported PAT 147,882 173,564 151,116 137,266 142,743 92,677 109,248 115,732 Adjusted PAT 161,582 176,624 159,881 137,266 142,743 92,677 109,248 115,732 Change (%) 46.6 9.3-9.5-14.1 4.0-35.1 17.9 5.9 Balance Sheet (INR Million) Share Capital 63,164 63,164 63,164 63,164 63,164 62,074 62,074 62,074 Reserves 341,366 421,556 360,881 340,367 275,428 183,194 183,631 184,094 Net Worth 404,530 484,720 424,045 403,531 338,592 245,268 245,705 246,168 Debt 13,054 10,778 1,715 4,019 4,019 30,078 30,078 30,078 Deferred Tax -11,941-22,550-19,717-19,591-19,591-27,328-27,328-27,328 Total Capital Employed 406,179 473,584 406,678 388,617 323,678 251,477 251,914 252,377 Gross Fixed Assets 380,964 390,107 414,795 448,080 508,080 578,771 638,771 698,771 Less: Acc Depreciation 246,561 255,449 266,951 286,929 311,594 340,695 370,075 401,255 Net Fixed Assets 134,403 134,658 147,844 161,150 196,486 238,077 268,697 297,516 Capital WIP 29,034 34,960 43,158 51,594 52,824 85,901 105,901 125,901 Investments 19,814 23,950 37,749 28,134 28,134 9,694 9,694 9,694 Current Assets 874,731 999,590 793,955 844,940 771,875 799,789 758,557 749,910 Inventory 60,713 56,178 55,681 61,838 62,173 89,453 66,489 70,265 Debtors 56,630 104,802 82,410 85,219 89,115 107,359 95,301 100,713 Cash & Bank 582,028 622,360 523,895 530,925 453,629 317,433 311,222 293,386 Loans & Adv, Others 175,360 216,250 131,969 166,958 166,958 285,545 285,545 285,545 Curr Liabs & Provns 651,803 719,573 616,028 697,201 725,641 881,984 890,934 930,644 Curr. Liabilities 651,803 719,573 616,028 697,201 725,641 881,984 890,934 930,644 Provisions 0 0 0 0 0 0 0 0 Net Current Assets 222,928 280,017 177,927 147,739 46,234-82,194-132,377-180,734 Total Assets 406,179 473,584 406,678 388,617 323,678 251,477 251,914 252,377 22 June 2017 25

Financials and Valuations Ratios Basic (INR) EPS 25.6 28.0 25.3 21.7 22.6 14.9 17.6 18.6 Cash EPS 34.5 35.9 33.7 31.5 31.0 23.9 28.4 30.0 Book Value 64.0 76.7 67.1 63.9 53.6 39.5 39.6 39.7 DPS 10.2 14.0 29.0 20.7 27.4 19.9 14.6 15.5 Payout (incl. Div. Tax.) 46.4 56.7 130.3 112.9 145.5 162.8 99.6 99.6 Valuation(x) P/E 11.6 11.2 16.9 14.4 13.6 Price / Book Value 4.0 4.7 6.4 6.4 6.4 EV/EBITDA 4.9 5.3 8.9 6.7 6.4 Dividend Yield (%) 8.2 10.8 7.9 5.8 6.1 EV /ton of Reserves 46.1 44.1 48.2 48.0 51.5 59.0 59.3 60.1 Profitability Ratios (%) RoE 36.6 35.8 35.6 34.0 42.2 37.8 44.5 47.0 RoCE 39.8 39.5 34.4 34.5 40.0 33.1 44.4 46.9 RoIC -51.5-52.3-45.5-39.1-41.2-23.0-41.2-42.9 Turnover Ratios (%) Asset Turnover (x) 1.5 1.4 1.7 1.9 2.3 3.0 3.2 3.4 Debtors (No. of Days) 33 56 44 43 43 43 43 43 Inventory (No. of Days) 36 30 30 31 30 30 30 30 Creditors (No. of Days) 5 4 4 5 5 5 5 5 Leverage Ratios (%) Net Debt/Equity (x) -1.4-1.3-1.2-1.3-1.3-1.2-1.1-1.1 Cash Flow Statement (INR Million) Adjusted EBITDA 156,678 180,836 159,632 152,300 159,404 95,887 131,351 140,466 Non cash opr. exp (inc) 73,597 65,165 71,437 80,749 59,947 68,697 73,809 77,040 (Inc)/Dec in Wkg. Cap. 35,647-68,387 2,442 6,487-3,906-16,054 6,214-8,610 Tax Paid -67,044-86,520-88,264-95,721-73,148-51,660-51,387-51,971 Other operating activities 0 0 0 0 0 0 0 0 CF from Op. Activity 198,879 91,094 145,247 143,815 142,297 96,871 159,987 156,924 (Inc)/Dec in FA & CWIP -34,094-24,540-41,164-49,014-61,230-103,769-80,000-80,000 Free cash flows 164,784 66,554 104,083 94,801 81,067-6,898 79,987 76,924 (Pur)/Sale of Invt -9,177-4,136-13,799 9,615 0 18,441 0 0 Others 42,177 56,433 64,754 52,871 49,111 39,693 26,188 24,120 CF from Inv. Activity -1,094 27,758 9,791 13,472-12,119-45,636-53,812-55,880 Inc/(Dec) in Net Worth 0 0 0 0 0-35,166 0 0 Inc / (Dec) in Debt -2,474-2,287-12,634 1,935 0 26,059 0 0 Interest Paid -540-452 -580-73 -207-4,117-3,575-3,611 Divd Paid (incl Tax) & Others -70,808-75,781-240,289-152,119-207,268-174,206-108,811-115,269 CF from Fin. Activity -73,821-78,520-253,503-150,257-207,474-187,431-112,386-118,880 Inc/(Dec) in Cash 123,963 40,332-98,465 7,030-77,296-136,196-6,211-17,836 Add: Opening Balance 458,064 582,028 622,360 523,895 530,925 453,629 317,433 311,222 Closing Balance 582,028 622,360 523,895 530,925 453,629 317,433 311,222 293,386 22 June 2017 26

N O T E S 22 June 2017 27

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