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Tisco: The cycle is turning - Views on News from Equitymaster
 
 
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  • Apr 3, 2002

    Tisco: The cycle is turning

    It was one of the challenging years for the Indian steel companies with price realizations witnessing a sharp drop and increasing demand supply gap. Tisco, however managed to report volume growth in sales for the first nine months of the current fiscal.

    The company’ sales volumes increased by 5% during the period April – December 2001 to 2.5 m tonnes. This was 74% of the total sales of the company at 3.4 m tones in FY01. Tisco’s fourth quarter volume sales are expected to improve with a gradual pick up in steel demand and an up tick in steel prices internationally. Tisco is expected to report about 2-3% revenue growth in the fourth quarter of the year.

    Financial snapshot
    (Rs m) 9m FY01 9m FY02 Change FY01 FY02E Change
    Gross Sales 54,060 54,466 0.8% 77,594 70,580 -9.0%
    Other Income 398 476 19.7% 551 535 -2.9%
    Expenses 42,113 45,376 7.7% 60,574 58,391 -3.6%
    Operating Profit 12,345 9,566 -22.5% 17,571 12,724 -27.6%
    Interest (net) 2,692 3,065 13.9% 3,766 4,210 11.8%
    Depreciation 3,552 4,028 13.4% 4,923 5,385 9.4%
    Profits before Tax 6,101 2,474 -59.5% 8,883 3,129 -64.8%
    Tax 310 41 -86.8% 490 44 -91.1%
    Extraordinary Items (2,348) (1,608) -31.5% (2,858) (2,056) -28.1%
    Net Profit 3,443 824 -76.1% 5,534 1,030 -81.4%
    Equity shares (m) 368 368   368 368  

    Key ratios
    Particulars 9m FY01 9m FY02 FY01 FY02E
    OPM 22.1% 16.7% 21.9% 17.3%
    NPM 10.6% 4.4% 10.7% 4.3%
    Cash EPS (Rs) 25.3 17.5 28.4 17.4
    EPS (Rs)* 20.9 8.8 22.8 8.4
    * Excluding extraordinary items

    The Golden Quadrilateral highway project is also expected to increase steel consumption in the country. The project is expected to consume over 1 m tones of steel. This would help in reducing the excess capacity in the steel industry to an extent. Tisco has already decided to hike prices of its long steel products (used in the construction industry) by Rs 1,000 per tonne.

    The company is continuously initiating measures to improve its volume growth amidst sliding steel prices. It has recently signed a technical marketing agreement with Nippon Steel of Japan with effect from April 1, 2002 for 3 years. As per the agreement, Nippon Steel will take Tisco’s CR automotive steel into the market for higher end applications. The company is also diversifying its export markets to Bangladesh, Malaysia, China, South Korea, Taiwan and some of the African countries.

    Among other new developments, Tisco is planning to zero in on South Africa as the location for its proposed 120,000 tones ferro chrome project entailing an investment of Rs 3 bn. Tisco aims to leverage on lower per unit power cost in South Africa at 60 paise compared to over Rs 4 per unit in India. To know more read Tisco: On African Safari

    Sluggish demand scenario and lower sales realizations have hit Tisco’s earnings potential in FY02. Its net profits would be one of the lowest in the last five years, a compounded annual decline of over 11% in the last six years.

    At the current market price of Rs 100, Tisco is trading at a P/E of 12x FY02 projected earnings. Over the last five years, the company’s stock has traded in the average P/E range of 8-20 times. Tisco’s marketing initiatives coupled with a revival in steel demand and prices globally are likely to improve its revenue growth in FY03. Its ongoing cost control measures would help the company in increasing its operating margins and consequently, higher earnings. The company’s earnings are expected to increase by over 30% in FY03.

     

     

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