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Tisco: Bottomline under pressure - Views on News from Equitymaster
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  • Oct 12, 2001

    Tisco: Bottomline under pressure

    Tisco declared 80% drop in its first quarter profits with a dip in operating margins. Slowdown in the industrial growth and falling steel demand is expected to further deteriorate its bottomline growth in the coming quarters.

    We have projected a 10% fall in the company’s revenues for the second quarter ended September ’01 led by a significant decline in steel prices. The domestic HRC (hot rolled coil) prices have fallen by Rs 4,000 per tonne, which has led to a steep decline in cold rolled products prices.

    The anti dumping duty imposed by the US on the Indian steel exports is another concern. However, Tisco’s management does not expect a severe impact from this. The company is eyeing other markets like China to maintain export growth. Nevertheless, in the near term, considering the excess capacity in the world markets it would be a challenging task for the company to increase exports without having an impact on realizations.

    To read more on anti dumping duties,click here

    Domestic steel production also recorded a 0.2% decline during the period April-July 2001 compared to 16% growth achieved in the corresponding period of the previous year. Combination of all these factors are expected to take a toll on Tisco’s operating margins, which could fall by about 400 basis points. The company’s stringent cost control measures would not be able to offset this loss.

    Financial snapshot
    (Rs m) 1QFY01 1QFY02 Change 2QFY01 2QFY02E Change
    Gross Sales 17,283 16,114 -6.8% 18,703 16,833 -10.0%
    Other Income 155 59 -62.0% 207 84 -59.3%
    Total Income 17,438 16,173 -7.3% 18,910 16,917 -10.5%
    Operating Profit 3,733 3,158 -15.4% 4,496 3,282 -27.0%
    Interest (net) 1,031 1,146 11.1% 684 752 10.0%
    Depreciation 1,122 1,356 20.9% 1,146 1,347 17.5%
    Profits before tax 1,580 656 -58.5% 2,666 1,183 -55.6%
    Tax 91 3 -97.0% 89 24 -73.4%
    Profits after tax 1,489 653 -56.2% 2,577 1,160 -55.0%
    Extraordinary items (475) (448) -5.8% (1,428) (450) -68.5%
    Net Profit 1,014 205 -79.8% 1,149 710 -38.2%
    Equity shares (m) 368 368   368 368  

    Key ratios
    Particulars 1QFY01 1QFY02 2QFY01 2QFY02E
    OPM 20.7% 19.2% 22.9% 19.0%
    NPM 8.5% 4.0% 13.6% 6.9%
    Cash EPS (Rs) 28.3 21.8 40.4 27.2
    EPS (Rs) 16.2 7.1 28.0 12.6

    The company’s interest and depreciation cost are expected to remain on the higher side as its major capex plans are over. These along with provision for VRS expenses would further depress earnings of the company.

    At the current market price of Rs 73 Tisco is trading at a P/E of 5x FY02 projected earnings. FY02 would be a tough year for the company due to widening demand supply gap in the steel industry worldwide.



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