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Tata Steel Ltd (updated - 01 Aug 2009)
While Tata Steel’s sales volumes in the June 2009 quarter were up a fairly strong 22 per cent, drop in average realisations, higher raw material costs and a disappointing show from the ferro-alloys business impacted the profit after tax, which dropped 47 per cent to Rs 790 crore year-on-year. That was some way below the consensus estimate of Rs 950 crore.

Average blended realisations fell around 18 per cent year-on-year, better than expected but not good enough — revenues came off by about 9 per cent to Rs 5,616 crore. This, and the bigger raw material bill, pressured its operating profit margin (OPM). The cost of inputs remained high because of some of the older coking coal contracts negotiated by the company.

It led to a contraction in OPM for the steel business to 32 per cent from 48 per cent in the June 2008 quarter. Things are beginning to look up for the steel maker.

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Tata Steel Ltd (updated - Mar 2009)
Tata Steel’s consolidated numbers for the December 2008 quarter may have beaten the Street’s estimates but no one’s convinced the worst is over. The stock rallied by about 6per cent on Friday but the joy was short-lived with the price coming off by over 7 per cent on Monday. The firm’s UK subsidiary Corus turned in better realisations in the December quarter, despite spot prices being lower, possibly because it was selling at prices contracted in earlier periods.That helped arrest the fall in consolidated net profits to 39 per cent at Rs 814 crore, despite a forex loss of Rs 200 crore and operating losses at NatSteel.

With demand still not picking up — global steel production came off by 24 per cent in January 2009 — and capacity utilisation at just about 60-65 per cent, steel makers probably haven’t seen the worst of the slowdown. Corus CEO Philippe Varin believes demand contraction is unlikely to reverse before June 2009. That’s why production cuts, at his plants could continue well into the next couple of quarters, keeping volumes at 40 per cent below last year’s levels. So, Corus’ revenues could be under more pressure in 2009-10 because volumes will be weaker (they’re tipped to fall about 13 per cent in 2009-10). Also because 30 per cent of the firm’s output is up for price renegotiation, realisations, which have averaged $1,205 per tonne so far this year, could drop. Currently, prices of hot rolled coils are ruling at $550 per tonne, half the levels seen in August 2008 (source: Bloomberg).

As a result, consolidated sales for Tata Steel, which are estimated to rise by about 25 per cent in 2008-09 to around Rs 1.4 lakh crore, may actually fall by about 20 per cent next year.The fall in net profits, estimated at Rs 8,800 crore this year, though could be sharper next year even though prices of coal are expected to come off. Which is why even though the stock trades at a multiple of 3.3 times estimated 2009-10 earnings, it finds few takers.
source - BS

In the current year, the company is expected to sell around 23 million tonnes of steel, which should be possible given that the demand seems to be picking up - in the June 2009 quarter, it was up an estimated 5 per cent against a drop of around 1.5 per cent last year. Moreover, prices in India are also firming up, especially of flat products, and being a more efficient producer, Tata Steel has raised its share in the market.

Pricing environment in Asia is also improving, say industry watchers, adding that should the Chinese economy recover, the threat of cheaper exports from that country will diminish. Prices appear to be stabilising in Europe too, though that will not help Tata Steel’s European subsidiary Corus in the current year.

However, aggressive cost-cutting measures are being effected at Corus in the wake of the global downturn - a 20 per cent cut in workforce is being targeted, which should drive down fixed costs, and the manufacturing facilities are being restructured so that production is more efficient. That should help Corus post better profits in 2010-11 even if steel prices don’t rise too much.

As for Tata Steel’s (standalone) net profits for 2009-10, analysts estimate a fall of about 60 per cent over Rs 11,600 crore reported last year.
The stock has risen 190 per cent since March this year and trades at Rs 462. Analysts feel it could do well because even if the steel maker’s numbers were muted this year, next year should see a turnaround.
source - BS

Tata Steel Ltd (updated - 08 Oct 2009)
Tata Steel’s saleable steel volumes have risen just 14 per cent in the September 2009 quarter pulling down the increase for the first half of the year to 22 per cent. That’s the reason total volumes for the September 2009 quarter are up just 19 per cent. Analysts say that inventories may be somewhat higher and stocks should get cleared soon. The confidence stems from the fact that demand for steel in the Indian market is expected to grow at a compounded rate of 12 per cent in the next few years, whereas supply is unlikely to keep pace. Indeed, the country may have to start importing larger quantity post-2012 pushing up prices of steel locally, say industry observers.

Meanwhile, with prices in the global market also recovering, and hot-rolledcoil (HRC) prices expected to average $550 a tonne, Tata Steel’s overseas subsidiary Corus is expected to turn in better numbers going forward. Corus, which has steel-making capacity of around 22 million tonnes, has been badly hit since the steel cycle worsened last year. But a slew of measures aimed at cutting costs should start paying off.

The workforce, for instance, is expected to be trimmed by about 15 per cent next year and the operations to be made more efficient. By the end of 2010-11, Corus’ conversion cost is expected to come down by 17 per cent to $225 a tonne, say analysts. Which is why even if steel prices rule at current levels, the company’s operations would be far more efficient, allowing it to post an operating profit of $75 a tonne. At home, Tata Steel is ramping up capacity -by mid-2011, the integrated capacity should be nudging 10 million tonnes. As such, while the steel maker’s results for the current year will be subdued with both revenues and profits coming off, analysts see a strong rebound in the following years.

The company’s earnings per share (eps) is expected to grow a compounded 150 per cent between 2010-12 and the balance sheet too should be in better shape by then. Since July, the stock has gained 31 per cent compared with a rise in the Sensex of 17 per cent and currently trades at Rs 517. CLSA has a 12-month price target of Rs 650 for the stock.
source - BS

Tata Steel Ltd (updated - 28 Oct 2009)
The Tata Steel stock came off by 7 per cent on Tuesday with the steel major turning in numbers that were below the Street’s expectations. Analysts had pencilled in an operating profit of close to Rs 2,100 crore for the September 2009 quarter but the company reported an operating profit of Rs 1,922 crore. Nevertheless, the operating profit margin (opm) at 33.8 per cent was nearly 300 basis points higher than the opm posted in the June 2009 quarter. What helped was lower raw material costs — mainly the cost of coal and raw materials, as a percentage of sales, dipped around 400 basis points sequentially.

Realisations in the September quarter may have been a tad lower than those in the June quarter, possibly because prices of some long products have come off, but the ebitda (earnings before interest, tax, depreciation and amortisation) at Rs 13,200 a tonne has been reasonably good and higher than the ebitda of Rs 12,300 a tonne seen in the June quarter. Demand in the Indian market is expected to grow at a compounded rate of 12 per cent in the next few years, whereas supply is unlikely to keep pace.

Indeed, the country may have to start importing larger quantities post 2012 pushing up prices of steel locally, say industry observers. Also, Tata Steel’s overseas subsidiary Corus is expected to turn in better numbers going forward. Corus, which has steelmaking capacity of around 22 million tonnes, has been badly hit since the steel cycle worsened last year.

However, steel prices are recovering globally and hotrolled-coil (HRC) prices are expected to average $550 a tonne. With Corus implementing several cost cutting measures, conversion costs are expected to come down by at least 15 per cent by the end of 2010-11 making its operations more efficient. The fortunes of Tata Steel now depend on how soon Corus is back in the black.
source - BS