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Tata Steel consolidated 1QFY10: In the red - Views on News from Equitymaster
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Tata Steel consolidated 1QFY10: In the red
Aug 27, 2009

Performance summary
  • Consolidated topline declines 46% YoY during the quarter led by both lower realizations as well as volumes
  • The company suffers a small loss at the operating level as opposed to a profit of Rs 74 bn in the same quarter last year
  • Operating level loss balloons to a loss of Rs 22 bn at the net level as fixed expenses like depreciation and interest charges take their toll
  • The company’s consolidated losses after minority would have been higher by another Rs 27 bn had it followed its earlier practice with respect to accounting for actuarial gains and losses and accounting for derivatives


(Rs m) 1QFY09 1QFY10 Change
Net sales 434,962 232,923 -46.4%
Expenditure 361,606 233,222 -35.5%
Operating profit (EBDITA) 73,356 (299)  
EBDITA margin (%) 16.9% -0.1%  
Other income 527 2,039 287.0%
Interest (net) 8,243 8,819 7.0%
Depreciation 11,050 10,890 -1.4%
Profit before tax 54,590 (17,968)  
Extraordinary income/(expense) (6,514) (2,188)  
Tax 8,930 2,229 -75.0%
Net profit/ (loss) before minority 39,146 (22,385)  
Minority interest 1,140 (212)  
Share of profit of associates (1,003) (86)  
Net profit/(loss) after minority 39,009 (22,087)  
Net profit margin (%) 9.0% -9.5%  
No. of shares (m) 730.1 730.1  
Diluted earnings per share (Rs)*   (15.9)  
Price to earnings ratio (x)*   NA  
(* on trailing twelve months earnings)

What has driven performance in 1QFY10?
  • Tata Steel’s consolidated topline declined by 46.4% YoY. The total steel deliveries fell by around 37% to 5.4 m tones, mainly on account of a recessionary trend in Europe that impacted steel demand. Moreover, lower steel prices in the Indian and South East Asian markets further caused the decline in the topline.

  • On the operating front, operating expenses declined by 35.5% YoY, lower as compared to the topline. Thus, Tata Steel registered an operating loss of around Rs 299 m during the quarter as against a profit of Rs 74 bn in the same quarter last year. However, Tata Steel managed to achieve a cost savings of around Rs 22 bn on account of ‘Weathering the Storm’ and ‘Fit for the Future’ programs implemented by it.

    Cost breakup
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 110,026 83,865 -23.8%
    % sales 25.3% 36.0%  
    Purchases of steel, semi finished steel & other products 91,435 34,986  
    % sales 21.0% 15.0%  
    Staff cost 48,150 39,625 -17.7%
    % sales 11.1% 17.0%  
    Freight and handling 17,316 11,564 -33.2%
    % sales 4.0% 5.0%  
    Purchase of power 16,158 9,664 -40.2%
    % sales 3.7% 4.1%  
    Other expenses 78,521 53,518 -31.8%
    % sales 18.1% 23.0%  

  • At net levels, consolidated losses before minority interest stood at Rs 22.3 bn as depreciation charges and interest expenses took their toll. However, a fourfold jump in other income limited the loss at the net levels to a certain extent. Consolidated losses after minority interest stood at Rs 22 bn during the quarter.

What to expect?
At the current price of Rs 438, the stock trades at a multiple of 0.7x its expected FY12 standalone book value per share. Although there has been a lot of concern in the market with respect to Corus operations, we have already been conservative in our valuation of the company and hence, do not feel the need to revisit our numbers on that front. We remain positive on the stock from a medium term perspective.

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