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Tata Steel: Driven by strong volumes - Views on News from Equitymaster

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Tata Steel: Driven by strong volumes

Jan 29, 2010

Performance summary
  • Standalone topline grows by 33% YoY during 3QFY10 on account of a 49% YoY higher production.
  • EBITDA margin expands to 33.8% during the quarter from 30.7% in 3QFY09 despite a 1.7% increase in raw material cost (as a percentage of sales).
  • Other income zooms 21 times during the quarter.
  • Standalone bottomline registers a growth of 156% YoY during 3QFY10 on account of topline growth, higher operating margins and other income.


Standalone financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Steel sales (000' tonnes) 1,072 1,596 49.0% 3,451 4,471 29.5%
Net sales 48,104 63,749 32.5% 177,768 176,825 -0.5%
Expenditure 33,357 42,180 26.5% 100,970 118,612 17.5%
Operating profit (EBDITA) 14,747 21,569 46.3% 76,798 58,214 -24.2%
EBDITA margin (%) 30.7% 33.8%   43.2% 32.9%  
Other income 117 2,636   2,648 3,860 45.7%
Interest 3,482 4,157 19.4% 8,448 11,499 36.1%
Depreciation 2,513 2,622 4.3% 7,169 7,717 7.6%
Profit before tax 8,869 17,426 96.5% 63,829 42,857 -32.9%
Exchange gain/(loss) (1,268) -   (7,756) -  
Tax 2,939 5,508 87.4% 18,648 14,012 -24.9%
Profit after tax/(loss) 4,662.4 11,917.5 155.6% 37,424.5 28,845.2 -22.9%
Net profit margin (%) 9.7% 18.7%   21.1% 16.3%  
No. of shares (m)         882  
Diluted earnings per share (Rs)*         49  
Price to earnings ratio (x)*         11.4  
*On trailing twelve months basis

What has driven performance in 3QFY10?
  • During 3QFY10, Tata Steel posted a standalone topline growth of 33% YoY on account of a 49% YoY higher production.

  • The company’s standalone operating margin expanded to 33.8% during the quarter from 30.7% in 3QFY09 despite a 1.7% increase in raw material cost (as a percentage of sales). Staff cost declined by 1.6% YoY, while power cost declined by 0.7% YoY (both as a percentage of sales).

    Cost break-up
    (Rs m) 3QFY09 3QFY10 Change
    Raw materials 10,674 15,241 42.8%
    % sales 22.2% 23.9%  
    Staff cost 5,689 6,523 14.7%
    % sales 11.8% 10.2%  
    Freight and handling 2,622 3,581 36.6%
    % sales 5.5% 5.6%  
    Purchase of power 2,635 3,032 15.0%
    % sales 5.5% 4.8%  
    Other expenditure 11,737 13,803 17.6%
    % sales 24.4% 21.7%  
    Total cost 30,721 39,148 27.4%
    % sales 69.3% 66.2%  

  • The company’s standalone bottomline registered a growth of 156% YoY during 3QFY10 on account of higher sales volume, higher operating margins and other income.

  • Tata Steel had issued Convertible Alternate Reference Securities (CARS) for an aggregate principal amount of US$ 875 m in September 2007. It invited holders of the CARS to offer to exchange their holdings for 4.5% convertible bonds due in 2014. The offer closed on November 16, 2009 and convertible bonds worth US$ 547 m were issued in exchange of CARS having face value of US$ 493 m. The 4.5% convertible bonds are convertible at Rs 606 at an exchange rate of Rs 46.36 per US$ between December 31, 2009 and November 11, 2014. US$ 382 m worth of CARS remains outstanding.

What to expect?
At the current price of Rs 562, the stock trades at a multiple of 1x its expected FY12 book value per share. Although there has been a lot of concern in the market with respect to Corus operations, we have already been conservative in our valuation of the company and hence, do not feel the need to revisit our numbers on that front. We remain positive on the stock from a medium term perspective.

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