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Tata Steel: Improvement in overall performance - Views on News from Equitymaster
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Tata Steel: Improvement in overall performance
Jun 2, 2011

Tata Steel has announced its results for the financial year ended March 2011 (FY11). The company has reported a rise of 17% YoY and 36% YoY in standalone sales and net profits during the period. Here is our analysis of the results:

Performance summary
  • Standalone topline grows by 17% YoY during FY11 on account of higher volume and better realisations compared with the corresponding period previous year.
  • EBITDA margins improve from 35.8% in FY10 to 38.9% in FY11.
  • At the bottomline level, net profits surge by 36% YoY in FY11 due to higher operating margins, lower interest charges.
  • On a consolidated basis, the company's topline grows by 16% YoY, while the bottomline registers a substantial profit compared to a loss in the previous period.


Financial performance snapshot
  Standalone Consolidated
(Rs m) FY10 FY11 Change FY10 FY11 Change
Net sales 250,220 293,964 17.5% 1,023,931 1,187,531 16.0%
Expenditure 160,699 179,635 11.8% 943,505 1,027,575 8.9%
Operating profit (EBDITA) 89,521 114,329 27.7% 80,427 159,956 98.9%
EBDITA margin (%) 35.8% 38.9%   7.9% 13.5%  
Other income 8538 7907 -7.4% 11,859 9810 -17.3%
Interest (net) 15,084 13,005 -13.8% 30,221 27,700 -8.3%
Depreciation 10,832 11,462 5.8% 44,917 44,148 -1.7%
Exceptional income/(expense) - -   -16,837 23,102  
Profit before tax 72,143 97,769 35.5% 310 121,020 38938.5%
Tax 21,675 29,112 34.3% 21,518 32,459 50.8%
Profit/(loss) after tax 50,468 68,657 36.0% -21,208 88,560 -
Minority interest - -   -152.4 602.8  
Share of profit of associates - -   1268.6 663.6  
Net profit/ (loss) 50,468 68,657 36.0% -20,092 89,827 -
No. of shares (m)   959     959  
Diluted earnings per share (Rs)*   71.6     92.3  
Price to earnings ratio (x)   8.1     6.3  
*Includes minority interest and share of profit of associates

What has driven performance in FY11?
  • Tata Steel reported a 17.5% YoY growth in standalone topline during the financial year 2010-11. The growth was due to strong domestic demand, higher proportion of value-added products and a significant increase in capacity by the end of the financial year.

  • Operational efficiencies led operating profits to soar by 27.7% YoY during the year. Operating profit margins improved from 35.8% in FY10 to 38.9% in FY11.

    Standalone cost break-up
    (Rsm) FY10 FY11 Change
    Raw materials 56,297 60,704 7.8%
    % sales 5.5% 5.1%  
    Purchases 1,691 1,802 6.6%
    % sales 0.2% 0.2%  
    Staff cost 23,615 26,198 10.9%
    % sales 2.3% 2.2%  
    Freight and handling 13,573 15,408 13.5%
    % sales 1.3% 1.3%  
    Purchase of power 12,683 14,049 10.8%
    % sales 1.2% 1.2%  
    Other expenses 52,841 61,475 16.3%
    % sales 5.2% 5.2%  
    Total cost 160,699 179,635 11.8%
    % sales 15.7% 15.1%  

  • On a standalone basis, robust operational performance coupled with lower interest charges caused the company's bottomline to rise by 36% YoY.

  • On a consolidated basis, net sales grew by 16% YoY. Higher volumes, better realisations and improvements on the cost front led the company to post a net profit of Rs 89.8 bn against a loss of Rs 20 bn in the previous financial year.

  • The company's net debt stands at Rs 466 bn at the end of March 2011.

  • The company's board has recommended a dividend of Rs 12 per share for FY11.

What to expect?
At the current price of Rs 582, the stock is trading at 1.1x its expected FY13 standalone book value per share (RPro subscribers can click here). While the company's topline has come in line with our estimates, it has outperformed our estimates on the bottomline front. In view of this, we will have to revise our numbers upwards. Furthermore, since the stock has not run up a lot in recent times, we maintain our positive view on it from a medium term perspective.

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