Financial Daily from THE HINDU group of publications
Friday, May 21, 2004
Financial Daily from THE HINDU group of publications Friday, May 21, 2004 |
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Corporate
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Performance Columns - Microscope Tata Steel: Cost-trimming boosts profits S. Muralidhar
THE over 70 per cent growth in Tata Steel's bottomline for 2003-04 has come not just out of the higher price realisations that most steel manufacturers benefited from last year, but also from a strong improvement in productivity and continued cost reduction. However, the lower 34 per cent growth in net profit during the last quarter ended March 2004 compared to the corresponding previous year's quarter, could be an indication of renewed pressure on the company's margins from a surge in input costs. Though a rise in input costs started impacting Tata Steel's performance starting from the first quarter of 2003-04, improved operational efficiencies helped the company to offset some of the effects of the increase in raw material costs. Factors that have aided the company's attempts at reducing costs include the reduction of raw material consumption per tonne of saleable steel from 3.2 tonnes in 2002-03 to 2.8 tonnes in 2003-04. Labour productivity has also improved from 245 tonnes of crude steel per man-year to about 260 for 2003-04. In terms of export performance, though the company exports were lower at 12.23 lakh tonnes in 2003-04 compared to the 12.45 lakh tonnes that it exported in the previous year, the average per tonne realisation (approximate F.O.B value) for steel exported has increased to $261.3, compared to $218.8 in 2002-03. Tata Steel's operating profit margin has gone up from about 26.4 per cent in the previous year to about 34.8 per cent in 2003-04. A number of factors contributed to this including a better product mix, higher sales of branded products and of course the higher prevailing prices of steel. Branded steel products as a proportion of total steel sales works out to about 27 per cent, more than double that of year 2002-03. A lower interest outgo and an increase in other income have also enabled Tata Steel to post a more than doubling of profit before tax at Rs 2,666 crore. But the much higher tax outgo of Rs 920 crore has pulled down the profit after tax to Rs 1,746 crore. The net profit margin as a result works out to 16.3 per cent during the year ended March 2004 compared to 11.6 per cent in 2002-03. At the current price of Rs 320, the Tata Steel stock is trading at a price to earnings (EPS of Rs 47.32) of less than 7 times.
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