TCS: Gratitude pricing

At Rs 850, the TCS offer is at a decent discount to Infosys

Based on the figures available on the stock exchanges, TCS's IPO was oversubscribed 4.5 times at the higher end of the price band of Rs 900.

Surprisingly, the issue has been priced at Rs 850. According to the company, this was done so that there would be an attractive upside to investors, as a token of gratitude for the overwhelming response to the issue.

One way to look at this is, at Rs 900, there probably wasn't enough money on the table. At that price, TCS was valued precariously close to Infosys, which not only has a much better balance sheet, but is also more efficient.

Infy had an operating margin of 27.6 per cent in FY04 (US GAAP), compared to 25.4 per cent for TCS. Moreover, its earnings growth has been steady, while TCS's earnings jumped 50 per cent in FY04 and declined marginally in FY03.

Besides, there's no cash on its books, compared to a huge cash balance worth Rs 80 per share in the case of Infy. By pricing the issue at Rs 850, there is now a good chance of making money at listing.

Another interesting revelation made by the company was that the issue was oversubscribed around 2.5 times (excluding green shoe option) at Rs 900, lower than the 4.5 times figure on NSE's and BSE's websites. Since retail investors and the media look at this data, it is something the regulator must look into.

Tata Power

For electricity companies the cost of fuel has emerged as a key factor that could impact profitability, and analysts were keenly awaiting Tata Power's June quarterly results in a bid to see whether the company management has been able to keep this cost under check.

Creditably, this cost has declined marginally to Rs 512.9 crore in the last quarter and it is understood that the company has been increasingly replacing high cost liquid fuels with more coal.

Crucially, the company has also been able to show a substantial growth in its power generation business which was up 12.7 per cent to 3,373 million units.

However, segment revenues were marginally down by 0.7 per cent due to a combination of factors ""- the Maharashtra Electricity Regulatory Commission's reduction in tariffs by 9.2 per cent from June 1, 2004 being one of them.

In addition, the company has also passed on the benefits of lower fuel costs to its consumers. Segment profits however, rose 13 per cent to Rs 234.02 crore due to the tight cost control measures implemented. Overall operating profit margins of the company grew around 450 basis points to 33.48 per cent in the last quarter.

However, overall profit of the company rose a mere 2 per cent to Rs 101.64 crore in the last quarter due to a surge in depreciation by 48.3 per cent to Rs 120.89 crore.

The increase could be explained with the company changing its accounting policy, in line with accounting standard (AS) - 11 "" cutting through the accounting jargon, an increase in foreign exchange liabilities ( due to depreciation of rupee) while purchasing a fixed asset, has been capitalised and depreciation accordingly provided.

SAIL gets into the act too

The recent rise in steel prices and the fact that domestic steel prices are still below international prices in spite of the rise has sparked a rally in steel stocks, and SAIL has been no exception to the trend.

The company's June quarter results have also helped""-it reported a stupendous 336 per cent increase in its net profits to Rs. 1,111.5 crore.

Production levels during Q1 were affected by a shortage of coal but the significantly large year-on-year growth in steel prices helped the company to offset this fall in production.

The company has also sought to reduce its emphasis on lower yielding semis coupled with a growing proportion of higher valued products like galvanised sheets.

Senior management officials also pointed out that they have reduced their exports in the last quarter and instead sought to leverage the strong demand conditions in the domestic markets. As a result, June quarter net sales rose by 23.3 per cent.

The company has continued to reduce its supply chain costs as well as lower its interest burden ""- it has prepaid loans worth approximately Rs. 960 crore in the June quarter, and it has lowered unit power consumption.

A larger revenue base helped operating profit in June grow 103 per cent versus 99 per cent recorded in the March quarter FY04.

Going forward, production levels should be restored given the recent steps taken to ensure optimal supply of coal.

With contributions from Mobis Philipose and Amriteshwar Mathur