Tata Steel: Stealing the show

Both the top line and operating margins soar as steel prices remain firm. 

Thanks to steel prices remaining firm, Tata Steel has posted some stellar numbers for the June 2008 quarter. Net sales (stand-alone) were up 47 per cent at Rs 6,156 crore, driven by higher volumes –up 11 per cent—and better domestic realisations, which rose 25 per cent. Not surprisingly, the steel maker’s operating profit margin was up a smart 800 basis points at 49 per cent, pushing up the operating profit by 78 per cent to Rs 3,025 crore.

 

The ferro alloys division too chipped in, growing by nearly 100 per cent during the quarter thanks to price increases. Tata Steel sources its entire requirement of iron ore from its captive mines and 65 per cent of its coking coal from captive plants. As such, it hasn’t felt the impact of a price rise in these commodities. With the company having expanded its steel-making capacity to 6.8 million tonnes per annum , volumes should continue to grow at 25 per cent, or thereabouts, for the rest of the year. 

While the management hasn’t said so, Tata Steel may not raise prices in the domestic market; currently prices at home are about Rs 4,500 per tonne lower than the international price. The company’s European subsidiary, Corus took a price hike earlier this year raising prices by 100 euros (about $150) per tonne. 

Consolidated revenues for Tata Steel are expected to grow are expected to grow by about 38-40 per cent in FY09 to Rs 1.6 lakh crore from Rs 1.1 lakh crore last year. The company’s net profits should see an even faster rise to Rs 11,800 crore while the earnings per share is estimated to increase by about 50 per cent. The Tata Steel stock has corrected by 37 per cent since the start of 2008 underperforming the market. At the current price of Rs. 681, it trades at a shade under 5 times estimated FY09 earnings and is reasonably valued.