Higher prices, lower costs buoy Tata Steel

QUARTERLY RESULT ANALYSIS: March 2005

Net profit was effected to some extent by a drop in operating expenses (about 70 per cent of such expenses is by way of payments and provisions for employees) by 10.35 per cent to Rs 2,717.22 crore.

Advances grew 26.9 per cent to Rs 2,09,742 crore while deposits grew 12.24 per cent to Rs 3,56,643 crore. Consequently, the credit-deposit ratio improved 680 basis points to 58.8 per cent.

Yield on advances fell 49 basis points to 7.68 per cent while cost of deposits fell 91 basis points to 5.11 per cent, keeping margins intact.

Due to a robust growth in advances, the capital adequacy of the bank fell 108 basis points to 12.45 per cent. However, it is well above the RBI stipulated norm of 9 per cent.

Net non-performing assets (NPAs) of the bank fell 83 basis points to 2.65 per cent. This is despite the fact that there has been a net write-back of Rs 95.96 crore in Q4FY05 compared to a provision of Rs 1042.43 crore last year.

The bank also did well on the personal loan segment where it disbursed Rs 46,451 crore, up 40.12 per cent while home loans recorded an increase of 46.28 per cent to Rs 24,988 crore. The bank's total retail advances stood at 24.95 per cent of total advances against 22.24 per cent last year.  Analysts maintain their outperformer rating for the bank, citing improving net interest margins and asset quality, higher credit-deposit ratio and its focus on retail.  These should help SBI maintain its monopoly status in terms of size and efficiencies. A growth of 15 per cent in EPS can be expected for FY06 which translates into an EPS of Rs 94. Given this the stock trades at a P/E multiple of 6.9 times its FY06 and 8.31 times trailing 12-month earnings.  BPCL
Higher consumption of raw materials hits operating profit  BPCL managed to post a good increase in net sales of 15.4 per cent in Q4FY05, despite the fact that there has been a small fall in the throughput and market sales.  Essentially, the company realised better prices for some products and paid lower excise duties of Rs 1,169.1 crore, lower by Rs 318 crore compared to Q4FY04.  However, the operating profit fell 30 per cent, thanks to a huge increase in raw material consumption as also other expenditure. The underrecovery of subsidies on LPG and SKO was around Rs 550 crore for the March quarter which also hurt profits.

Net sales have been strong because of firmer product prices though prices at the retail level were not increased commensurately with the increase in crude prices and put pressure on retail sales margins. Also, BPCL's gross refining margin (GRM) for the quarter was just $2.7 per barrel, compared with about $8 per barrel in Q4FY04, mainly because regional GRMs were lower. Besides, the company had a brief shutdown in the March quarter because of which the product mix was changed in favour of lower value-added products such as furnace oil. That, too, contributed to the lower GRM. Besides, the company was unable to get adequate quantities of crude from Bombay High which is cheaper than from other sources.

Consumption of raw materials as a percentage of net sales increased to 24 per cent in Q4FY05 from 19.9 per cent in Q4FY04. Other expenditure rose to Rs 1270 crore, an increase of about 52 per cent. The company also paid out higher interest costs of Rs 41.3 crore compared with Rs 23.7 crore, depressing the profit before tax.

An inventory gain of Rs 250 crore as also a tax writeback of Rs 36.6 crore helped the company make a higher profit than it would otherwise have earned.

 Going ahead, unless the government increases retail prices of petrol and diesel, retail sales will become unprofitable. However, the under-recovery of subsidies should fall in the current year. The company will also be commissioning its new three million tonne capacity in June 2005.  Besides, modernisation should boost GRMs in FY06. At the current price of Rs 380, the stock trades at a multiple of seven times estimated FY06 earnings of Rs 54. Analyst believe that the stock will outperform, especially with crude prices coming off.  TATA MOTORS
Surge in other income boosts net  Tata Motors reported a 33.18 per cent rise in net profit in Q4FY05, to Rs 388.17 crore, while net sales improved 28.85 per cent to Rs 5,338.87. The strong performance was aided by a surge in other income apart from declines in net interest outgo and taxation.  There were improvements in volumes of commercial vehicles (CVs) and passenger cars, though operating margins were under pressure because of rising raw material costs.

Sales of CVs in the domestic market increased 16 per cent to 55,132 units, while that of passenger vehicles rose 26 per cent to 54080 units.

Export revenues rose 50 per cent to Rs 124.32 crore.

Other income rose to Rs 29.60 crore from Rs 8.97 crore. Net interest payment fell 41.50 per cent to Rs 18.54 crore, while taxation was lower by 47.17 per cent to Rs 77.11 crore.

However, there was a 38.05 per cent rise in raw material costs, which led to a 300 basis point drop in operating margins.

The company recorded a net profit of Rs 1236.95 crore for FY05, representing a rise of 53 per cent over the previous fiscal. Net sales grew nearly 32 per cent to Rs 17,419.13 crore.

The company kept aside Rs 1,400 crore as capital expenditure for FY06. These investments will be made for both CVs and passenger cars.

 If the March quarter performance is any indication, margins are likely to be under pressure going forward, though the company plans to cut costs aggressively this year.  However, on the positive side, analysts note that the improving road infrastructure should drive demand for the CV segment.  The fuel price hike is also likely to cause a shift in volumes to the diesel segment, which is good news for Tata Motors. The scrip, which trades at a 12-month trailingP/E of 12.63x, continues to be the four-wheeler pick for many.  JET AIRWAYS
Stagnant expenses aid profits  Jet Airways