X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 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: Home and abroad - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Tata Steel: Home and abroad
Oct 4, 2010

In a previous article, we pointed out how the fortune of the world steel industry is now sharply divided. On the one hand, we have the developed economies. As they struggle to take off after the financial meltdown, their steel industry is facing sluggish demand. Contrast that with the emerging nations. The steel industry in the BRIC nations and even the Middle East is far better off. This conclusion can be drawn from country-level data, which we examined in the earlier article.

The divided fortunes of the world steel industry
Particulars FY08 FY09 FY10
Tata Steel India
Volumes (m tonnes) 4.8 5.2 6.2
EBITDA (Rs/Tonne) 16,677 16,912 14,729
EBITDA margin 41% 36% 36%
Tata Steel Europe
Volumes (m tonnes) 23.0 19.0 14.2
EBITDA (Rs/Tonne) 3,279 5,663 (908)
EBITDA margin 8% 10% -2%
Nat Steel
Volumes (m tonnes) 2.4 2.4 2.4
EBITDA (Rs/Tonne) (729) 1,241 2,316
EBITDA margin -2% 3% 9%
Thailand
Volumes (m tonnes) 1.4 1.1 1.2
EBITDA (Rs/Tonne) 3,539 2,991 108
EBITDA margin 12% 8% 0%
Source: Company, Equitymaster Research
Note: Certain cost items could not be allocated with precision due to lack of details.

Interestingly, even if we look at the micro-level, the sharp divide is apparent. Take Tata Steel for instance. As can be seen from the table, the contrast in performance of their Indian operations vs. their European operations is chalk and cheese. And this difference is at the variable cost level. Hence, it keeps aside factors like high-cost facilities and interest cost on debt. The far superior operating margins of the Indian operations can be explained by both strong realisations (due to strong demand) as well as low-cost production of hot metal (due to captive mines for key raw materials).

Some useful conclusions can be drawn from this data. Indian steel companies which are expanding capacity in India are looking at much better economics. Contrast that with Tata Steel, whose inorganic growth through the acquisition of Corus, has left it in a tight spot. The company will have to ensure that synergies kick in. It will also have to successfully apply Corus' downstream technology in value-added products to its India operations. Certainly a more challenging management task than growing solely within India and letting the superior economics do the trick.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2019
Get our special report, Zero To Millions
(2019 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

TATA STEEL SHARE PRICE


Nov 16, 2018 03:37 PM

TRACK TATA STEEL

  • 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

COMPARE TATA STEEL WITH

MARKET STATS