Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 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: Back in favour? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 11, 2009

    Tata Steel: Back in favour?

    The Indian stock markets have put behind the worst and have rallied 53% in 2009 till date. During this period, various sectors and stocks in particular have outperformed the index by rising anywhere between 100% and 200%! Banking, metals, capital goods, infrastructure and construction are few of the sectors, which have outperformed the benchmark indices. In this article, we will focus on Tata Steel which has been receiving a fair degree of attention. Let us have a closer analysis on why has it outperformed the markets.

    The chart beside shows the movement of the stock price of Tata Steel vis-a-vis the BSE-Sensex from the beginning of 2009 to date. The stock has outperformed the index handsomely. To put things in perspective, Rs 100 invested in the Sensex at the beginning of 2009 would have yielded an absolute return of 56% (Rs 156) as on June 10, 2009. However, a similar amount invested in the Tata Steel stock would have appreciated to Rs 192.

    If one were to closely observe the movement of the stock and Sensex during the second and third quarter of FY09 when the world was exposed to the global financial crisis, the stock of Tata Steel was beaten down significantly as compared to Sensex. The reasons attributed for the sharp decline in the stock price was on account of the leveraged buyout of Corus in 2007. The investors were concerned about the company's ability to service the debt it took for the acquisitions. Moreover, the demand for steel going forward was presumed to be sluggish.

    As a result of these concerns, the stock was beaten down by more than 80% from its 52 week high price. But was this concern justified? We don't think so as the demand for steel in India is expected to remain robust for many years to come due to its low consumptions as compared to other developing nations. Moreover, the domestic operations of Tata Steel continued to remain strong. To put things in perspective, though the domestic operations accounted for around 15% of the consolidated topline but at the operating profit level, it accounted for a sizeable 40% of the company's consolidated profits. Furthermore, the company has significant levels of cash generation, which could have helped it service the debt taken for Corus acquisition quite comfortably over a medium term period of 2-3 years.

    Thus, while the markets were pricing the stock as if it were headed for bankruptcy, a closer look revealed that nothing could have been more further from the truth. From a risk reward perspective, the stock did look attractive if one were to take a long term view. Hence, when the sentiments improved, the anomaly was corrected within a space of few months and the stock has really performed well over the past few months. And not just Tata Steel, there are indeed quite a few stocks that suffered far more than what they deserved because of some near term problems but had the resources at their disposal to ride out the pain and emerge stronger over the long-run. All that is needed to unearth such stocks is slightly more extensive study and the stomach to withstand the short term volatility in prices.



    Equitymaster requests your view! Post a comment on "Tata Steel: Back in favour?". Click here!

    1 Responses to "Tata Steel: Back in favour?"

    e anandan

    Jun 12, 2009

    i fully agree with your views. however how many have to stomach to invest and sit patiently ?

    Equitymaster requests your view! Post a comment on "Tata Steel: Back in favour?". Click here!

    More Views on News

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    You've Heard of Timeless Books... Ever Heard of Timeless Stocks? (The 5 Minute Wrapup)

    Aug 19, 2017

    Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.

    Why NOW Is the WORST Time for Index Investing (The 5 Minute Wrapup)

    Aug 18, 2017

    Buying the index now will hardly help make money in stocks even in ten years.

    Trump Takes a Beating (Vivek Kaul's Diary)

    Aug 18, 2017

    Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

    How To Read Your Mutual Fund Account Statement Correctly (Outside View)

    Aug 17, 2017

    PersonalFN simplifies the mutual fund account statement for you.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)