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S. Muralidhar

High steel prices and better product mix boost profits.

TATA Steel is reaping the benefits of the buoyancy in the steel market and the sustained improvement in its operational efficiencies.

The company's net profits during the second quarter ended September more than doubled to Rs 403 crore from the Rs 200.66 crore recorded in the corresponding second quarter of last year.

Total income from Tata Steel's operations went up from Rs 2,078.82 crore in the second half of last year to Rs 2,612.99 crore during the quarter-ended September 2003.

Though staff costs rose during the quarter under review, that of raw materials consumed dropped and the interest expenses also fell 30 per cent in the quarter compared to the corresponding previous period.

Tata Steel's performance during the second quarter of this fiscal was better than the first quarter's partly due to a large chunk of the employee separation expenses (VRS) being accounted for in the first period.

Exports during the first quarter were up 10 per cent compared to the second. This could be indicative of a slowdown in exports to traditional markets such as China.

In dollar terms (free on board value), Tata Steel's export turnover went up over 33 per cent in the first half of this fiscal compared to the corresponding previous period.

But the growth in the export turnover in rupee terms was lower at 27 per cent as the average exchange rate for the steel exported during the six months ended September 2003 was Rs 46.18 (to a dollar) compared to Rs 48.69 for the corresponding previous period.

During the six months ended September 2003, Tata Steel's average price realisation per tonne of steel sold at Rs 25,305 was about 16 per cent higher than Rs 21,747 per tonne in the previous year's first half.

This is in line with the general rising trend in steel prices both in the domestic and international markets.

The higher realisation per tonne is also possibly attributed to the increased sale of branded steel products.

Tata Steel's net profit margin for the half year ended September 2003 crossed 13.75 per cent compared to 6.89 per cent in the corresponding previous period.

The debt-to-equity ratio dipped below the 1:1 mark and is now about 0.89 times. In terms of the earning before interest, depreciation and tax (EBIDTA) margin, Tata Steel continues to be at the third position globally after China Steel and Posco of Korea.

Interestingly, the international prices of steel (hot rolled coil; f.o.b. -Europe) at about $300 are lower than the peaks of April 2000, when Tata Steel's operating profit was only about 60 per cent of the current levels.

With this performance during the first half of this year, Tata Steel is likely to close the fiscal with total sales of over Rs 11,000 crore.

However, with the projected dip in steel prices over the next three quarters, the possibility of margins coming under pressure exists.

For the medium term, the company is likely to continue reaping the benefits of better price realisations and the good demand pick up in the domestic and export markets.

At Rs 358, the Tata Steel stock discounts the annualised per share earnings by about 10 times. Shareholders can hold on to the stock and book profits partially on highs.

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