Tisco on the move - Views on News from Equitymaster

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

  • MyStocks

MEMBER'S LOGINX

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

Tisco on the move

Jun 4, 2001

Tisco, the lowest cost steel producer (US$150 per tonne) in the world, has reported outstanding growth in profits for the year ended March ’01. The company’s richer product mix, marginally improved realization, continued cost control and slightly higher volumes have contributed in fueling the bottomline growth. Tisco’s profits excluding extraordinary items (VRS and power cost) jumped by 89% and topline grew by 16% (excluding sale of cement division which contributed about 3% of turnover in FY00). In volume terms the sales growth was dismal 6%, indicating the value growth through higher realization by the company. Over the last ten years, Tisco’s domestic sales in volume terms have increased at a compounded annual growth rate of 9%, which is on the lower side compared to other commodities. This is because of supply exceeding demand and slowing growth in industry as a whole. In FY01, the steel industry is expected to grow at the rate of 6%-8% per annum.

For detailed financials click here

The company is gradually changing its revenue mix in favour of cold roll products, which has comparatively higher margins. Currently hot roll (HR) products, cold roll (CR) products and semis contribute equally to its profits. In the current year value added HR sales (34% contribution to total sales volumes) added significantly to the turnover growth. While domestic sales grew by 11%, exports were lower by 15% in volume terms. Exports sales declined largely due to a 28% fall in HR coils sales (accounts for 39% of exports).

Tisco has commissioned its CR mill in April ’00 in a record time of 26.5 months and is comparable to the best of its kind in the world. The second galvanizing line (which has started few days back) will target the high-end market for galvanized CR products. Its value added CR products are expected to account for 34% of total production in FY02 (12% in FY01). With comparatively higher realizations in CR products than HR products and the expected rise in steel prices, Tisco’s profits are likely to report over 30% growth in FY02.

Although, Tisco is one of the low cost steel producers in the world, high cost of transportation makes its unviable for the company to export at competitive prices to other countries. Since the company’s plants are not situated near the ports, transportation costs nearly add US$ 30- 40 per tonne of steel. On the other hand its Korean competitor, Pohang’s plant is situated near the port allowing it to export at a competitive price to countries including South East Asian markets.

International prices of HR coils collapsed from $350/tonne in 1997 to $180/tonne in 1998 in the wake of the Asian and the Russian crisis. At present the prices are ruling firm around $250/tonne and are expected to move up steadily in the current fiscal. This could further increase Tisco’s realizations, resulting in better margins.

During FY01, the company repaid some of its debts, reducing the debt equity ratio to 0.96x from 1.1x in the previous year. As a result interest cost declined by 3% to Rs 3.8 bn. Tisco plans to redeem some of its high cost debts with its cash profits of over Rs 10 bn. It will pay off high cost 17% Tata Trust Bonds (amounting to Rs 5 bn) in the second half of the current fiscal. Among others, higher provision for power costs relating to previous years (Rs 862 m) and VRS expenses trimmed its effective tax rate to 8% from 11% in FY00. Improving cost management is expected to help the company in driving the earnings growth.

In FY01, the company has web enabled its business and implemented an ERP package. Its 170 customers are today using this facility and contribute 80% to its sales. As part of its marketing initiatives, the company launched two new brands Tata Tiscon and Tata Shakti GC. Sales of new products contributed 5.5% to total revenues and inventory was lower by 28%. It has also stepped up its rural marketing initiatives to increase usage of steel in rural India.

In order to optimally utilize its cash flow, Tisco has increased its stake in Tata SSL to 82% and plans to hold around 90% stake before the end of this year. The company has decided to absorb Tata SSL, which currently has a strong foothold in downstream products (wire rods).

Among other developments, the company has also indicated its interest in the telecom sector, if the returns from the same are higher than its steel business. It has also decided to start a ferro chrome project in Australia. This is due to the fact that power costs in India is 5 times higher than Australia. In the next fifteen years, the difference is likely to be 15x. The project would require an investment of Rs 2.5 bn and would be initiated by this year-end. As part of a strategic decision to enter the mining business, Tisco is also foraying into titanium mining. The company is looking at alliances with global majors for manufacturing titanium dioxide.

At the current market price of Rs 145 Tisco is trading at a P/E of 10 times FY01 earnings and a market cap to sales ratio of 0.7 times. The company is trading at a P/E of around 7 times FY02 projected earnings. With the aggressive cost control measures (per tonne cost of steel expected to come down further to US$ 125 in FY02) and steady increase in steel prices from the current levels, the company looks all set to grow.


Equitymaster requests your view! Post a comment on "Tisco on the move". Click here!

  

More Views on News

TATA STEEL 2019-20 Annual Report Analysis (Annual Result Update)

Aug 7, 2020 | Updated on Aug 7, 2020

Here's an analysis of the annual report of TATA STEEL for 2019-20. It includes a full income statement, balance sheet and cash flow analysis of TATA STEEL. Also includes updates on the valuation of TATA STEEL.

TATA STEEL 2018-19 Annual Report Analysis (Annual Result Update)

Sep 9, 2019 | Updated on Sep 9, 2019

Here's an analysis of the annual report of TATA STEEL for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of TATA STEEL. Also includes updates on the valuation of TATA STEEL.

TATA STEEL Announces Quarterly Results (1QFY20); Net Profit Down 66.7% (Quarterly Result Update)

Aug 8, 2019 | Updated on Aug 8, 2019

For the quarter ended June 2019, TATA STEEL has posted a net profit of Rs 6 bn (down 66.7% YoY). Sales on the other hand came in at Rs 359 bn (down 5.0% YoY). Read on for a complete analysis of TATA STEEL's quarterly results.

TATA STEEL Announces Quarterly Results (4QFY19); Net Profit Down 84.2% (Quarterly Result Update)

Apr 26, 2019 | Updated on Apr 26, 2019

For the quarter ended March 2019, TATA STEEL has posted a net profit of Rs 23 bn (down 84.2% YoY). Sales on the other hand came in at Rs 424 bn (up 17.4% YoY). Read on for a complete analysis of TATA STEEL's quarterly results.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

How Much Money Do You Need to Be a Professional Trader? (Fast Profits Daily)

Sep 17, 2020

In this video I'll answer a question I get asked often: How much capital do I really need to trade the markets for a living? Let's find out...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

TATA STEEL SHARE PRICE


Sep 25, 2020 11:41 AM

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 8-QTR ANALYSIS

COMPARE TATA STEEL WITH

MARKET STATS