• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Muralidhar

Mr B. Muthuraman, Managing Director, Tata Steel... Flashing all the right signals.

SHAREHOLDERS of Tata Steel can continue to hold on to the stock at the current levels. At about Rs 155, the stock trades at a price to earnings multiple of 5.6 times. With steel prices stabilising at the current levels and showing signs of sustaining them, the company's prospects could continue to look up. At the Rs 155-165 levels, the stock continues to exhibit upside potential.

For the year ended March 2003, Tata Steel, the largest and the most profitable steel manufacturer, recorded a net profit of Rs 1,012.3 crore, compared to the previous year's Rs 204.9 crore. Net sales and income from operations of the company were also up over 30 per cent at Rs 8,721.3 crore for 2002-03 compared to the previous year's Rs 6,697.5 crore.

External factors: Despite Tata Steel's improvement in operational efficiencies, a large portion of the credit for financial year 2003's performance has to be attributed to the dramatic increase in steel prices during the year. Steel prices, which hit a record low in 2001-02, made a sharp recovery last year, recording a near 50 per cent improvement in prices.

Apart from the higher prices, the increase in demand for steel also enabled the company post higher volumes during the year. Tata Steel also recorded a surge in export volumes and realisations, thanks to renewed buoyancy in the global steel markets. Export revenue at Rs 1,313 crore for the year had more than doubled from the previous year's Rs 581crore.

During 2002-03 exports constituted just over 14 per cent of the company's total sales.

Another important factor that has bolstered Tata Steel's bottomline during 2002-03 is the lower interest rates. Net interest at Rs 305 crore for 2002-03 was about 18 per cent lower compared to Rs 370 crore in 2001-02. The fall in interest costs was not as pronounced in 2001-02 compared to Rs 377 crore in 2000-01.

Tata Steel's debt to equity ratio also came down from 1.22 to about 1.05 times during the year. The company's interest coverage ratio, on the other hand, more than doubled to 6.9 times from the previous year's 3.2 times.

Internal factors: Difficult years 2000-01 and 2001-02 have actually enabled Tata Steel to strengthen its performance parameters.

The company's EBITDA margin at 27 per cent is said to be the second highest among its peers globally. Net profit margin at 11.6 per cent was a just shade lower than four times the previous year level.

The major internal factor that has led to a clear improvement in product realisations is the change in Tata Steel's product mix in favour of a higher percentage of value-added products.

The company has progressively increased the share of high-grade cold rolled (CR) steel, while the lower valued hot rolled (HR) steel's share has taken a hit. For 2002-03, Tata Steel's product production mix comprised of 40 per cent HR, 28 per cent CR, 18 per cent long products and 14 per cent of semis.

In comparison, the company's product mix had a higher 54 per cent and 46 per cent of HR during 2000-01 and 2001-02 respectively.

As a product category, CR sheets and coils have, in contrast, grown from being just ten per cent of the product mix in 2000-01 to 20 per cent in 2001-02 and further to 28 per cent during the year under review. The sales of the company's branded steel products were also higher in 2002-03.

Other factors that have aided the company's performance include a 4 per cent reduction in plant-specific energy consumption and a 6.5 per cent reduction in manpower, while productivity has continued to improve.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Larsen & Toubro: Give Grasim the go-by

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line