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.
Tisco: Focusing on value - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 13, 2002

    Tisco: Focusing on value

    Tata Steel (Tisco), India’s premier private sector steel company, has been undergoing a significant change over the last few months. The company, which is one of the lowest cost steel producers in the world, is now leveraging its cost structure by moving into value added products. The benefits of this coupled with higher price realizations are expected to bring in an unprecedented earnings growth for the company in FY03.

    Global hot rolled (HR) steel prices have rebounded sharply to US$ 280 currently, from an average US$ 210 (up by over 30%) in FY02. This rise is on the back of supply side constraints (mainly from Korea and Japan) and signs of a global economic recovery. Tisco has already increased its product prices by around Rs 3,000 – Rs 3,500 per tonne since April 2002, which would sharply improve realizations in the current fiscal.

    To take better advantage of higher price realizations, Tisco is gradually increasing the proportion of value added cold rolled (CR) products. Price realization on CR steel is about 20%-25% higher than HR steel and is double that of semi finished steel. Apart from better sales realization, over 80% capacity utilization of cold rolled (CR) products from next year onwards would also push up the company’s volume growth. The company’s domestic market share in CR steel has already increased to 27% in June 2002 from 21% in FY02. Change in the sales value mix is likely to help company in maintaining its operating margins at higher levels.

    Sales mix
    Particulars FY01 FY02 FY03E
    HR 46% 38% 32%
    CR 19% 29% 35%
    Semis 19% 13% 6%
    Long 16% 19% 27%
    Source: Tisco

    Apart from better sales realizations, Tisco would also reap the benefits of its cost reduction efforts. The company has been focusing on curtailing its employee costs, which formed 16% of total revenues in FY02. Through VRS Tisco has reduced the number of employees to 46,000 in FY02 from 65,000 in FY98. For FY03, the company expects the number of employees to come down further by around 3,000. Power is the other major cost component (10% of revenues), which is expected to decline in the coming years. With full capacity utilization of power from its group company Tata Power, cost per unit of power would reduce gradually in the coming years. The cumulative effect of higher price realizations, change in product mix and cost control measures would be reflected in Tisco’s operating margins in the coming years (FY03 projection at 22%).

    At the current market price of Rs 121, Tisco is trading at a P/E multiple of 11x FY03 projected earnings. The company is projected to report nearly triple digit growth in profits in FY03. In the last five years, Tisco has traded in the average P/E range of 8-22 times. Despite better earnings prospects, the stock is lacking buying interest due to concerns over the company’s diversification plans.



    Equitymaster requests your view! Post a comment on "Tisco: Focusing on value ". Click here!


    More Views on News

    Tata Steel: A Strong Quarter (Quarterly Results Update - Detailed)

    Aug 12, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    Tata Steel: Strong Quarterly Performance (Quarterly Results Update - Detailed)

    May 22, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    Tata Steel: Domestic Realisation Disappoints, Loss continues... (Quarterly Results Update - Detailed)

    Dec 19, 2016

    Tata Steel has reported a 0.1% increase in the topline while the bottomline was in red in 2QFY17.

    SAIL: Loss at EBITDA Level Due to Higher Raw Material Cost (Quarterly Results Update - Detailed)

    Jun 12, 2017

    The company registered a negative EBITDA of Rs 2.64 billion during the quarter. This is on the back of an increase in raw material prices.

    Tata Steel: Loss from Discontinued Business Mars Performance (Quarterly Results Update - Detailed)

    Sep 27, 2016

    Tata Steel has reported a 6.3% decline in the topline while the bottomline was in red in 1QFY17.

    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)


    • 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


    Detailed Financial Information With Charts