X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Tata Steel: Europe shows signs of revival - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Tata Steel: Europe shows signs of revival
May 27, 2010

Tata Steel has announced its FY10 results. The company has reported a 31% YoY decline in topline during the year while its bottomline has turned negative. Here is our analysis of the results.

Performance summary
  • Consolidated topline declines by 31% YoY during FY10 despite improvement in demand in the developed markets from 2QFY10 lows.
  • EBITDA margins decline to 7.9% in FY10, down from 12.3% in FY09.
  • Other income grows by more than 3 times during the year.
  • Bottomline turns red in FY10 due to lower operating margins, higher tax outgo and restructuring costs.
  • On a standalone basis, the company registers a 3% growth in its topline and a 3% decline in its bottomline.
  • Board recommends a dividend of Rs 8 per share.


Financial snapshot
  Standalone Consolidated
(Rs m) FY09 FY10 Change FY09 FY10 Change
Net sales ††† 243,158 † 250,220 2.9% † 1,473,293 † 1,023,931 -30.5%
Expenditure ††† 151,823 † 160,699 5.8% † 1,292,016 †††† 943,505 -27.0%
Operating profit (EBDITA) ††††† 91,334 ††† 89,521 -2.0% †††† 181,277 ††††††† 80,427 -55.6%
EBDITA margin (%) 37.6% 35.8%   12.3% 7.9%  
Other income ††††††† 3,083 †††††† 8,538 177.0% † 2,657 ††††††† 11,859 346.4%
Interest (net) ††††† 11,527 ††† 15,084 30.9% ††††††† 32,902 ††††††† 30,221 -8.1%
Depreciation ††††††† 9,734 ††† 10,832 11.3% ††††††† 42,654 ††††††† 44,917 5.3%
Profit before tax ††††† 73,156 ††† 72,143 -1.4% †††† 108,378 ††††††† 17,147 -84.2%
Extraordinary income/(expense) ††† -†† †† -††   ††††† (40,945) ††††† (16,837)  
Tax ††††† 21,139 ††† 21,675 2.5% ††††††† 18,940 ††††††† 21,518 13.6%
Net profit/ (loss) before minority ††††† 52,017 ††† 50,468 -3.0% ††††††† 48,492 ††††† (21,208)  
Minority interest ††† -†† †† -††   † 409 (152)  
Share of profit of as sociates ††† -†† †† -††   † 607 † 1,269 108.9%
Net profit/(loss) after minority ††††† 52,017 ††† 50,468 -3.0% ††††††† 49,509 ††††† (20,092)  
Net profit margin (%) 21.4% 20.2%   3.4% -2.0%  
No. of shares (m)   †††††† 887.4     † 886.7  
Diluted earnings per share (Rs)   56.9     (22.7)  
Price to earnings ratio (x)   9     NA  

What has driven performance in FY10?
  • Tata steel reported a 31% YoY decline in consolidated topline during FY10. Total deliveries for the group fell from 28.5 m tonnes in FY09 to 24.3 m tonnes in FY10. However, global steel consumption recovered in the second half of the year after a steep decline in the first half. In 4QFY10, consumption grew 28% QoQ. Demand came in from major steel consuming sectors such as automobiles, machinery and equipment production industries. Global steel prices have risen following the rise in raw material costs.

  • Capacity utilsation improved in Tata steel Europe as the year progressed, from 53% in 1QFY10 to 80% in 4QFY10. It was primarily on account of a stronger order book. As a result, on a consolidated basis, the company had a much better second half during FY10. Operating profits during 2HFY10 were about 15 times higher than 1HFY10.

  • The company witnessed a contraction in operating margins from 12.3% in FY09 to 7.9% in FY10. Selling prices and sales mix contributed to lower operating profits during the year. Raw material cost increased by 1.4% YoY as a percentage of sales. Contracts with raw material suppliers are undergoing a change with coking coal prices now negotiated quarterly. Other expenses increased by 6.5% as a percentage of sales.
    Consolidated cost break-up
    (Rs m) FY09 FY10 Change
    Raw materials †††† 435,080 † 316,645 -27.2%
    % sales 29.5% 30.9%  
    Purchases †††† 314,059 † 130,870 -58.3%
    % sales 21.3% 12.8%  
    Staff cost †††† 179,751 † 164,630 -8.4%
    % sales 12.2% 16.1%  
    Freight and handling ††††††† 60,269 ††† 55,491 -7.9%
    % sales 4.1% 5.4%  
    Purchase of power ††††††† 59,535 ††† 40,517 -31.9%
    % sales 4.0% 4.0%  
    Other expenses †††† 243,323 † 235,350 -3.3%
    % sales 16.5% 23.0%  
    Total cost † 1,292,016 † 943,505 -27.0%
    % sales 87.7% 92.1%  

  • The Tata Steel groupís liquidity position (including undrawn credit lines) on 31st March, 2010 stood at Rs 142 bn. Its net debt on that date stood at Rs 444 bn.

What to expect?
At the current price of Rs 483, the stock trades at a multiple of 0.9x its expected FY12 standalone 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. We remain positive on the stock from a medium term perspective.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TATA STEEL SHARE PRICE


Sep 24, 2018 (Close)

TRACK TATA STEEL

  • Track your investment in TATA STEEL with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

TATA STEEL - FERRO ALLOYS COMPARISON

COMPARE TATA STEEL WITH

MARKET STATS