| A key reason has been the fact that prices of hot-rolled coil (HRC) in the first quarter of calendar 2004 had reached close to record levels of approximately $545 a tonne. |
| Operating profit rose 48 per cent to Rs 1,183.44 crore in the fourth quarter of fiscal 2004 and operating profit margins rose 700 basis points to 37 per cent. The company has kept its raw material costs in check as key inputs are sourced from captive facilities. |
| However, the key question is whether the company would be able to sustain its performance in the future, given the fact that in the Chinese market, the government recently took measures to slow down the economy. |
| This has resulted in HRC prices in China already dropping to approximately $480-$490 a tonne in the last 45 days. While prices in China have dropped, steel prices in Europe and the US are firm at around $525 a tonne, owing to strong demand. |
| Analysts point out that numerous plants in Western Europe are operating below optimum capacity owing to shortage of iron ore, hence there exists a demand-supply gap of approximately 5-8 million tonne. |
| Tata Steel is well positioned to meet this demand in the West, as its captive facilities of key raw materials ensures that it faces no production bottlenecks. |
| Also the domestic market is expected to absorb a larger proportion of the company's output. Apart from new markets, the management has been aggressive in ensuring price realisations do not taper sharply ""- it is understood that the company is taking steps to significantly reduce output sold on spot prices. |
| In addition, the company is also working on reducing its cost structure further. It is planning to modernise / upgrade its blast furnace, coupled with a recently formed venture with a Thai company for ensuring supplies of limestone at competitive prices. |
| Analysts, therefore, do not anticipate any drop in Tata Steel's profit in the next 12-15 months ""- in fact several domestic brokerage houses are projecting a growth of 15-17 per cent in Tata Steel FY05 profits. |
| Hence, while the Sensex has lost around 8 per cent in the last nine trading sessions, the scrip gained around 4 per cent. And with the board shortly meeting to discuss a bonus, sentiment on this stock is expected to be strong. The stock trades at a multiple of around 5-6 times estimated FY 2005 earnings. |
| With contributions from Amriteshwar Mathur |
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