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Tata Steel: A peep into past - I - Views on News from Equitymaster
 
 
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  • Jun 17, 2008

    Tata Steel: A peep into past - I

    In the last two articles, we have seen the performance of SAIL during the two phases of steel cycle i.e. from year 1999 to 2003 which was a cyclical downturn and 2003 to 2007 which witnessed an upturn. Now in the next two articles, let us see the performance of its peer, Tata steel that was the largest steel producer in the domestic market after SAIL. Let us have a look at the financial performance of Tata steel between years 1999 and 2003.

    The revenues of the company during this period grew at a CAGR of 11.9% compared to SAIL, which grew at a CAGR of 6% only. This significant growth rate achieved during low phase can be attributed to the broad product portfolio of the company. The volume and realizations of saleable steel grew at a CAGR of 11.9% and 6.2% respectively. The realisations from saleable steel showed an upward trend in all years except in FY02 where it declined by 6.9% YoY basis. This decline was result of lower steel prices, which was caused due to overcapacity and rising protectionism overseas.

    The operating profits of the company grew at a CAGR of 31.9% in the period under consideration. The operating profits also showed a rising trend in all years except in FY02 where it declined by 21.3% YoY basis, which was the result of lower realisations in that year. The company was able to achieve growth in operating profits in the low phase also due to its operational efficiency. The company managed to reduce its operating expenses from Rs.21,898 per tonne in FY99 to Rs.18,794 in FY03, a point-to-point decline of 14%.

    The net profits of the company grew at a CAGR of 37.6% for the period under consideration. It also showed a rising trend in all years except in FY02, where it declined by 63% YoY basis. The interest coverage ratio of the company increased significantly from 1.8 in FY99 to 5.7 in FY03 as the company reduced its debt, which helped in the improvement of bottom line. The company registered a significant increase in net profit in FY03 of close to 400% on a YoY basis on account of rising steel prices, higher realizations and upturn in the steel demand.

    As seen from the above analysis, a ruthless focus on cost efficiency and conservatism on the debt front has enabled the company to register decent performance even during a downturn. These are the very qualities that separate an average company from a good one, more so in commodity and capital intensive industries like steel. We will take a look at the company’s performance during the upturn and consider another four-year period between 2003 and 2007 in the next article.

     

     

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