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TISCO: Splendid performance continues - Views on News from Equitymaster
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  • Jul 23, 2003

    TISCO: Splendid performance continues

    TISCO, the largest domestic private sector steel company, has reported a robust growth in topline as well as in its bottomline in the June quarter of FY04. TISCO's topline has grown by 28% while its bottomline has grown by a significant 316%. What is commendable about the performance is that the operating margins have also shot up by 1,020 basis points to 29.9%. It must be noted here that the company has regrouped and reclassified figures for the previous period to conform to the classification of the current period wherever necessary.

    (Rs m) 1QFY03 1QFY04 Change
    Net Sales 17,649 22,571 27.9%
    Other Income 110 181 64.8%
    Expenditure 14,177 15,820 11.6%
    Operating Profit (EBDIT) 3,473 6,751 94.4%
    Operating Profit Margin (%) 19.7% 29.9%  
    Interest 853 765 -10.4%
    Depreciation 1,386 1,446 4.4%
    Profit before Tax 1,344 4,721 251.4%
    Extraordinary items (623) (710)  
    Tax 78 1,340 1613.8%
    Profit after Tax/(Loss) 642 2,671 315.9%
    Net profit margin (%) 3.6% 11.8%  
    No. of Shares 368.0 369.2  
    Diluted Earnings per share* 7.0 28.9  
    P/E Ratio   6.5  
    (* annualised)      

    The company has posted a splendid topline (up 28%) growth for the June quarter. Continued strength in steel prices and higher exports has led to this robust growth in topline. Just to put things in perspective, exports constituted 16% of the company’s net sales in 1QFY04 as compared to 12% in the corresponding period last year. Though volatility was witnessed in steel prices during the June quarter, including some correction, the impact on Tisco seems to be minimal.

      1QFY03 1QFY04 % Change
    Steel Production (tonnes) 874,259 964,614 10.3%
    Steel Sales (tonnes) 826,253 879,909 6.5%
    Exports (Rs m) 2,088 3,677 76.1%

    The company has also managed to keep a check on its operational expenses. This aided the significant 94% jump in operating profits. Better asset sweating and resource utilisation has led to lower operational costs on incremental steel production leading to better operational efficiency. The employee rationalisation exercise that the company has undertaken seems to have augured well for the company with staff costs coming down to 14% of net sales in 1QFY04 compared to 16% in the corresponding quarter last year. Moreover, reduction in power costs to 8% of net sales in the June quarter from 11% in the same period last year has also helped improve the operating profits and consequently the bottomline.

    TISCO has managed to reduce its interest expenses by 10% in the June quarter taking advantage of the low interest rate scenario. Moreover, the company has announced that it has prepaid its foreign currency loans worth Rs 1.4 bn to Commerz Bank (Belgium) and Deutsche Bank AG (Frankfurt). Depreciation has increased by a marginal 4%. It must be noted here that the company has announced the expansion of its steel capacity by 1 m tonnes. Also, the company’s employees seperation scheme has continued even in the June quarter, which is reflected in the extraordinary items declared in the results.

    At Rs 187, the stock is currently trading at a P/E of 6.5x its annualised 1QFY04 earnings. On the back of expectations of good results, the stock has already had a handsome run on the bourses, increasing by 39% in fiscal FY04. One key driver for the company’s performance has been its continuous efforts at improving its operational efficiencies, which has helped it outperform its peers time and again. TISCO’s efforts at increasing the share of value-added and branded products in its total revenues has helped the company beat the cyclicality of the sector consistently over the years. With the company increasing its capacity and the Chinese dragon showing no signs of curtailing its steel consumption, it seems that the company is all set to capitalize on increase in steel consumption in domestic and international markets. However, all said and done, a close watch needs to be kept on any signs of a weakness in steel prices and demand.



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