Restructuring and cost-cutting at Corus should see the company in better shape next year.
Analysts say that inventories may be somewhat higher and stocks should get cleared soon. The confidence stems from the fact that demand for steel in the Indian market is expected to grow at a compounded rate of 12 per cent in the next few years, whereas supply is unlikely to keep pace. Indeed, the country may have to start importing larger quantity post-2012 pushing up prices of steel locally, say industry observers.
Meanwhile, with prices in the global market also recovering, and hot-rolled-coil (HRC) prices expected to average $550 a tonne, Tata Steel’s overseas subsidiary Corus is expected to turn in better numbers going forward. Corus, which has steel-making capacity of around 22 million tonnes, has been badly hit since the steel cycle worsened last year. But a slew of measures aimed at cutting costs should start paying off.
The workforce, for instance, is expected to be trimmed by about 15 per cent next year and the operations to be made more efficient. By the end of 2010-11, Corus’ conversion cost is expected to come down by 17 per cent to $225 a tonne, say analysts. Which is why even if steel prices rule at current levels, the company’s operations would be far more efficient, allowing it to post an operating profit of $75 a tonne.
At home, Tata Steel is ramping up capacity — by mid-2011, the integrated capacity should be nudging 10 million tonnes. As such, while the steel maker’s results for the current year will be subdued with both revenues and profits coming off, analysts see a strong rebound in the following years.
The company’s earnings per share (eps) is expected to grow a compounded 150 per cent between 2010-12 and the balance sheet too should be in better shape by then. Since July, the stock has gained 31 per cent compared with a rise in the Sensex of 17 per cent and currently trades at Rs 517. CLSA has a 12-month price target of Rs 650 for the stock.