Financial Daily from THE HINDU group of publications
Sunday, Oct 26, 2003
Financial Daily from THE HINDU group of publications Sunday, Oct 26, 2003 |
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Investment World
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Stocks Markets - Recommendation Jindal Strips and Jindal Stainless: Stay with stainless S. Muralidhar
M. Ratan Jindal, Vice-Chairman and Managing Director... Demerger adds shine.
The growth in earnings and profits came from a combination of good pick up in demand, interest cost-savings and higher realisations per tonne of steel sold. Jindal Stainless is the newly-formed company, which emerged after the manufacturing facilities and the productive enterprise was demerged from Jindal Strips. Two small subsidiaries were merged with Jindal Stainless with effect from April 2003 and only the investments-related business of the old company vest with Jindal Strips. The two new entities are expected to start trading separately in the stock exchanges from November 1, 2003. Post-demerger, for every 100 shares held in the old entity, the shareholder would now be issued 100 shares in Jindal Stainless (including the bonus) and 27 shares in the new Jindal Strips. As the productive business of the old company was demerged into Jindal Stainless, the new Jindal Strips will barely represent five per cent of the previous organisation's business. Shareholders can consider offloading their stake in the market after the new Jindal Strips share is listed, while continuing to hold the Jindal Stainless stock for leveraging potential gains from a continued improvement in performance by the company. The global recovery of the stainless steel industry and the continued strong growth in demand from China, one of the largest consumers of stainless steel in the world market currently, has had a positive impact on Jindal Stainless' performance during the second quarter and the half-year ended September. Further, the price of stainless steel has seen a sustained upward trend over the past few months, with domestic demand at a steady seven to nine per cent clip. The impact can be gauged from the 71 per cent jump in net profits at Rs 38.4 crore for the second quarter of this fiscal compared to the corresponding previous quarter. Jindal Stainless' total income for the quarter ended September 2003 was Rs 521.2 crore. The company's stainless steel production during the first half of this fiscal was 2,38,088 tonnes compared to 1,86,579 tonnes in the corresponding half-year ended September 2002. The first half pre-tax profit worked out to Rs 111.2 crore and net sales was Rs 1,060 crore. Exports during the period grew 55 per cent in rupee terms to Rs 491.4 crore. However, despite the 27 per cent jump in volume sales and the 22 per cent increase in total income, Jindal Stainless' operating profits were strained during the second quarter of this fiscal due to a sharp increase in raw material and input costs. The company has managed to minimise the impact by partially increasing the price of its products and reducing its operating costs further. The single largest benefit to the company's bottomline came from the massive savings in interest costs partly from the debt restructuring exercise done by the company and the replacement of expensive debt, with fresh loans at lower rates. The total debt burden of about Rs 750 crore was also split into Rs 700 crore under the new company, Jindal Stainless, and Rs 50 crore was retained with Jindal Strips, post-demerger. As a result, interest costs for the half-year ended September 2003 was just Rs 23.3 crore compared to Rs 52.8 crore during the first half of 2002-03. The weighted average cost of debt for the company is now about 5.5 per cent. Jindal Stainless' capacity expansion at its Hisar plant, the planned green-field ferro chrome project in Orissa and the proposed new stainless steel melting facility at the same site will further boost the company's cost competitiveness. The company already caters to over 40 per cent of the domestic stainless steel demand. The Jindal Strips stock was last traded on September 8 at Rs 361, discounting its full year (2002-03) per share earnings by about eight times.
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