Tata Steel, one of the representatives of India's venture into heavy industries earlier this century, is attempting to make an entry in the record books. It is aiming to become the lowest cost producer of steel in the world. And it may be already within striking distance.
Tata Steel is India’s largest integrated steel producer. In recent years it has suffered due its very large employee base, which contributed in part to high costs of production. Another factor that hurt the company was the low value added nature of its output. Finally, with the company nearing its capacity, concerns about future growth dampened sentiment pertaining to the stock.
Over the last couple of years, however, the company seems to have undergone a significant change. Its employee base is declined 34% between FY93 and FY00. Productivity on the other hand (in terms of tonnes/man year) has jumped 104% to 161 in FY00 as compared to 79 in FY95. The company has also taken measures to improve its product mix. Finished steel now accounts for 85% of its output as compared to 80% in FY98. This ratio is further expected to jump to 90% in FY02, when its cold roll mill (high value output) is running at full capacity. Tisco has also stated that it is actively looking at acquiring capacities to generate growth (taking care of the last concern).
Production costs per tonne of HR coil declined significantly to US$ 172 as compared to US$ 154 at POSCO, the best in its class. Infact during the last quarter production costs were as low as US$ 157! The company’s cost control measures have already begun to reflect on the bottomline. Profit after tax jumped 50% in FY00 on the back of a 3% rise in operating margins.
Read Interview with Mr. Ishaat Hussain, Executive Director, Tata Sons
The Tisco stocks trades at a P/E multiple of 10. The valuation is significantly lower as compared to that recorded in previous years (FY97 - 18.3, FY98 - 19.6, FY99 - 16.2). With the tech fever on the wane, maybe the stock will once again catch the face of investors.
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