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TISCO: Operational gains

Oct 30, 2002

TISCO, the largest private sector steel company, has reported a robust growth in topline as well as in its bottomline in the September quarter of FY03. TISCO's topline has grown by 16% while its bottomilne has grown by a significant 639%, but on a lower base. What is commendable about the performance is that the operating margins have shot up by 930 basis points to 26%.

(Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
Net Sales 17,015 19,710 15.8% 31,061 35,946 15.7%
Other Income 257 144 -44.1% 316 254 -19.8%
Expenditure 14,141 14,529 2.7% 25,088 27,379 9.1%
Operating Profit (EBDIT) 2,875 5,181 80.2% 5,973 8,567 43.4%
Operating Profit Margin (%) 16.9% 26.3%   19.2% 23.8%  
Interest 952 764 -19.8% 2,098 1,565 -25.4%
Depreciation 1,313 1,373 4.5% 2,670 2,724 2.0%
Profit before Tax 866 3,188 268.0% 1,522 4,532 197.9%
Extraordinary items (535) (842)   (982) (1,452)  
Tax (56) (314) 456.9% (59) (389) 558.4%
Profit after Tax/(Loss) 275 2,032 638.6% 480 2,691 460.6%
Net profit margin (%) 1.6% 10.3%   1.5% 7.5%  
No. of Shares 368.0 368.0   368.0 368.0  
Diluted Earnings per share* 3.0 22.1   2.6 14.6  
P/E Ratio   5.3     8.0  
(* annualised)            

Stable steel prices and higher export volumes have led to this robust growth in topline. Operational expenses of the company have risen by only 3% compared to a 16% rise in topline. This has led to a significant 80% 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.

TISCO has managed to reduce its interest expenses by 20% in the September quarter taking advantage of the low interest rate scenario. In the corresponding quarter last year, the company had incurred extraordinary expenses (Rs 576 m) on acount of employee separation costs. In the current quarter, the company has incurred higher expenses (Rs 842 m) under this head. Net profits have however, increased considrably by 639% despite the higher extraordinary expenses.

The TISCO board has taken the decision to merge its subsidiary Tata Special Steel Limited (TSSL) with itself in the current year. The Board has approved a swap ratio of one equity share of Tisco for every 5 equity shares held in TSSL. Tisco has also plans to set up of a ferro chrome project at an estimated cost of Rs 2,570 m at Richards Bay, South Africa.

At Rs 117 the stock is currently trading at a P/E of 5x annualised 2QFY03 earnings. Better steel realisations have kept the TISCO counter buoyant in the last 4-5 months. However performance of the company to a large extent depends on the export business it gets. With punitive restrictions being imposed by the US on steel imports, exports could see weakness in the near term. Performance of the stock will also be dependent on the fortunes of steel prices. In the long term, it looks like the company could see better days ahead.


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