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Nandita Datta
NEW DELHI, Aug 17: The bear-hammering in the Tisco counter has seen the scrip touch an 11-year low of Rs 93.50. The stock has also underperformed the sensex -- on a year-on-year basis the sensex has lost around 33 per cent (from 4428 on August 13, 1997, to 2950 on August 13, 1998) while Tisco has shed over 55 per cent from Rs 209.25 to Rs 93.50. In the process, the steel major has seen its market capitalisation erode by more than Rs 4000 crore.
With a depressed industry scenario and a tight cash-flow position, TISCO's valuations are unlikely to improve in the short-term.
The first-quarter results have already indicated the tough times being faced by the company. Q1 net profit has plunged by 59 per cent to Rs 27.09 crore, while net profit margin has more than halved from 4.6 per cent to 2 per cent. Earning per share (on an annualised basis) is also down to a low of Rs 2.21. With price realisations falling, margins will continue to be remain under pressure. According to industry analysts, domestic demand NEW DELHI, Aug 17: The bear-hammering in the Tisco counter has seen the scrip touch an 11-year low of Rs 93.50. The stock has also underperformed the sensex -- on a year-on-year basis the sensex has lost around 33 per cent (from 4428 on August 13, 1997, to 2950 on August 13, 1998) while Tisco has shed over 55 per cent from Rs 209.25 to Rs 93.50. In the process, the steel major has seen its market capitalisation erode by more than Rs 4000 crore.
With a depressed industry scenario and a tight cash-flow position, TISCO's valuations are unlikely to improve in the short-term.
The first-quarter results have already indicated the tough times being faced by the company. Q1 net profit has plunged by 59 per cent to Rs 27.09 crore, while net profit margin has more than halved from 4.6 per cent to 2 per cent. Earning per share (on an annualised basis) is also down to a low of Rs 2.21. With price realisations falling, margins will continue to be remain under pressure. According to industry analysts, domestic demandfor finished steel is likely to dip further by 400,000 tonnes in 1998-99 to 24.3 million tonnes per annum. Export prospects are also unlikely to look up in view of the turmoil in the south-east Asian region.
Although Tisco managed to improve its Q1 turnover marginally to Rs 1395.77 crore, it was basically driven by volumes. Industry analysts attribute the high volumes to the fact that most steel producers including Tisco are offering steep discounts to their dealers to cut down inventory levels. This would partly explain why Tisco's Q1 sales turnover grew by only 1.3 per cent when volume sales rose by more than 9 per cent.
Although the lower inventory levels would help cut costs for the full-year, expenditure incurred on the voluntary retirement scheme as well as the capex programme of Rs 1000 crore would add to expenses. The company's interest burden is likely to swell thanks to borrowings -- both domestic and foreign -- undertaken to finance the final phase of the modernisation programme. A higherprovision for depreciation will also mean lower profits for the full-year.
But what is actually a drag on Tisco's finances is the 1.2 mtpa cold-rolled mill. The project was initially slated to come up in Goplapur, but after spending almost Rs 100 crore on site development, the company has now decided to relocate the project at Jamshedpur. Although company officials are hopeful of commissioning this plant next year, analysts are sceptical.
The delay in commissioning this plant is costing Tisco dear, not only in terms of a cost-overrun but also because it's absence is preventing the steel major from going into value-added products which would fetch a better margin and help improve profitability.
The modernisation programme, which commenced in 1984 and is likely to go onstream by the turn of the century, is slated to cost Rs 4000 crore. Company officials have admitted that by the year 2000 the company's internal accruals will be around Rs 3200 crore, which leaves a gap of Rs 800 crore.
With the cash-flowposition becoming tight, the gap could widen. This means Tisco would have to resort to either equity funding, which could mean a sharp drop in earnings, or debt financing, which would burden the company with a high interest cost. Either way, the company will be hit hard.
Tisco has more problems on its sleeves -- next year, its foreign currency convertible bonds are coming up for redemption which, according to analysts, is likely to result in an outgo of around Rs 400 crore. The ECB of $100 million is also coming up for conversion next year and as the conversion price of Rs 291 is way above the current market price, few are likely to opt for conversion. However, the redemption is only in 2000.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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