Thursday January 24, 04:00 PM
Tisco: Melting demand |
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By Equitymaster.com
The impact of slowdown in the Indian and global economy is clearly reflected in Tisco's third quarter performance. Excess capacity and mounting inventory levels have depressed steel prices which had a significant impact on steel majors financial performance. Tisco has reported a 73% fall in net profits in 3QFY02 and a more than 70% fall in profits for the third consecutive quarter. Revenues too have remained flat in the December quarter.
| (Rs m) |
3QFY01 |
3QFY02 |
Change |
| Gross Sales |
18,682 |
19,022 |
1.8% |
| Other Income |
36 |
160 |
345.0% |
| Expenditure |
14,501 |
15,893 |
9.6% |
| Operating Profit (EBDIT) |
4,181 |
3,129 |
-25.2% |
| Operating Profit Margin (%) |
22.4% |
16.4% |
|
| Interest |
993 |
967 |
-2.7% |
| Depreciation |
1,291 |
1,358 |
5.2% |
| Profit before Tax |
1,933 |
964 |
-50.1% |
| Other Adjustments |
-527 |
-561 |
6.5% |
| Tax |
130 |
57 |
-56.0% |
| Profit after Tax/(Loss) |
1,276 |
346 |
-72.9% |
| Net profit margin (%) |
6.8% |
1.8% |
|
| No. of Shares (m) |
368.0 |
368.0 |
|
| Diluted Earnings per share* |
19.6 |
9.9 |
|
| P/E (at current price) |
|
10.1 |
|
| *(annualised and before other adjsts.) |
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Tisco's operating margins failed to show signs of improvement in the third quarter. From 22% in 3QFY01, OPM declined by 590 basis points to 16%. However, on a QoQ basis, the company has seen a rise in OPM by 150 basis points. This could be on the back of improvement in product mix by increasing volumes of cold rolled and coated steels. The company is also focusing on branding of steel products and rural marketing.
Tata Steel (TISC.BO, news) 's ongoing efforts to reduce cost has helped it in curtailing interest cost. The company has refinanced high cost debt of Rs 5 bn in the current quarter by exercising call option on the issue and has successfully raised fresh debt of Rs 2 bn at an average cost of 9.2%.
At the current market price of Rs 100, Tisco is trading at a P/E multiple of 10x 3QFY02 annualised earnings. Steel demand globally is unlikely to improve in the next two quarters and prices are likely to remain at lower levels. This would further impact the company's business in the coming quarters. However, Tisco's initiatives to foray into other international markets for exports and its strong brand could trim the drop in earnings.
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