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- Nov 27, 2009 - Tata Steel: Few takers in developed markets
Tata Steel: Few takers in developed markets
Performance summary
- Topline declines by 43% YoY during 2QFY10 on the back of poor demand in the developed markets.
- EBITDA margins plummet to 1.5% in 2QFY10, down from 18.6% in 2QFY09.
- Other income declines by 76% YoY during the quarter.
- Bottomline turns negative in 2QFY10 on the back of lower operating margins.
- For 1HFY10, the company registers a 45% decline in the topline and turns negative at the bottomline level.
| (Rs m) | 2QFY09 | 2QFY10 | Change | 1HFY09 | 1HFY10 | Change |
| Net sales | 441,806 | 253,950 | -42.5% | 876,767 | 486,874 | -44.5% |
| Expenditure | 359,538 | 250,232 | -30.4% | 721,144 | 483,454 | -33.0% |
| Operating profit (EBDITA) | 82,268 | 3,718 | -95.5% | 155,623 | 3,419 | -97.8% |
| EBDITA margin (%) | 18.6% | 1.5% | 17.7% | 0.7% | ||
| Other income | 744 | 179 | -75.9% | 1,271 | 2,218 | 74.5% |
| Interest (net) | 8,209 | 7,172 | -12.6% | 16,452 | 15,991 | -2.8% |
| Depreciation | 11,470 | 11,535 | 0.6% | 22,520 | 22,425 | -0.4% |
| Profit before tax | 63,333 | (14,810) | 117,923 | (32,778) | ||
| Extraordinary income/(expense) | (3,633) | (9,113) | (10,147) | (11,301) | ||
| Tax | 12,664 | 3,275 | -74.1% | 21,594 | 5,505 | -74.5% |
| Net profit/ (loss) before minority | 47,036 | (27,198) | 86,183 | (49,583) | ||
| Minority interest | (321) | (174) | (1,461) | 38 | ||
| Share of profit of associates | 1,001 | 300 | -70.1% | 2,004 | 386 | -80.7% |
| Net profit/(loss) after minority | 47,717 | (27,073) | 86,726 | (49,159) | ||
| Net profit margin (%) | 10.8% | -10.7% | 9.9% | -10.1% | ||
| No. of shares (m) | 886.7 | |||||
| Diluted earnings per share (Rs)* | (97.4) | |||||
| Price to earnings ratio (x)* | NA |
What has driven performance in 2QFY10?
- During 2QFY10, Tata steel posted a 43% YoY decline in consolidated topline as the company continued to suffer from the unprecedented collapse in demand from the developed economies. China and India continue to be the two bright spots in the world steel market. The group delivered 6.2 m tonnes (mt) of steel as against 5.3 mt during 1QFY10. Out of the 6.2 mt, Indian operations contributed 1.5 mt while Tata Steel Europe contributed 3.9 mt.
- During the quarter, operating costs declined by 30% leading to an erosion in operating margins. However, cost-saving benefits achieved in 1HFY10 from the ‘Weathering The Storm’ and ‘Fit For The Future’ programmes at Tata Steel Europe amounted to around Rs 38 bn.
Cost break-up (Rs m) 2QFY09 2QFY10 Change Raw materials 94,727 81,563 -13.9% % sales 21.4% 32.1% Purchases of steel, semi finished steel & other products 116,961 37,027 -68.3% % sales 26.5% 14.6% Staff cost 47,458 43,608 -8.1% % sales 10.7% 17.2% Freight and handling 16,067 14,580 -9.3% % sales 3.6% 5.7% Purchase of power 17,689 10,128 -42.7% % sales 4.0% 4.0% Other expenses 66,637 63,328 -5.0% % sales 15.1% 24.9% Total cost 275,213 176,777 -35.8% % sales 81.4% 98.5% - The Tata Steel group’s liquidity (including undrawn credit lines) on 30th September 2009 stood at Rs 179 bn. Its net debt on that date stood at Rs 507 bn.
What to expect?
At the current price of Rs 543, the stock trades at a multiple of 1x 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.OUR TOP 5 IDEAS
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