Sharp Decline In Tata Steel Eps Predicted

Steel major Tata Iron and Steel Com-pany (Tisco) is expected to witness a sharp decline in its EPS during the 1996-97 period even though net profit is likely to grow by a modest five to six per cent.

"We expect a 12 per cent decline in the fully diluted EPS of the company in 1996-97 and a minor growth in the net profit," an analyst said. Another stated, "Tisco's EPS is expected to drop by around one per cent." Net profit is estimated in the range of Rs 570-620 crore on sales growth in the band of six to seven per cent. One analyst estimates profit of Rs 604 crore on a total sales turnover of Rs 6,362 crore.

 

Analysts expect Tisco's sales to rise by six per cent from the previous year's figure of Rs 5879.96 crore and a 11 per cent growth in operating profits. Tisco is unlikely to repeat its first half performance. "We do not expect an encore mainly because while the first half 1996-97 had witnessed a nine per cent industrial growth compared to first half 1995-96, the second half of 1996-97 over second half 1995-96 had been sluggish."

In the first half Tisco reaped the benefits of the phase-III modernisation which helped the company's realisation to increase by 4 per cent. However, in the second half the poor industrial offtake, high inventory position, and liquidity crunch affected the company's performance. Besides, the uncertain political climate resulted in lower investment all around in capital expenses, analysts felt.

Tisco's net price realisation from steel sales has taken a beating during the last five months of the previous fiscal.

The total steel sales during 1996-97 grew by only three per cent to 2.44 mt from 2.36 mt in 1995-96. In the last 52 weeks the company's scrip has touched a high of Rs 261 and a low of Rs 146. In the last 15 trading days, however, the price of Tisco scrip has been following a downtrend with the price coming down from Rs 182.50 on April 30 to Rs 178.25 on May 21 in the BSE. This trend has been reflected in the NSE too with the scrip price dropping from Rs 185.45 on April 30 to Rs 178.65 on May 21.

However, in spite of a sluggish steel market, Tata Steel has managed to keep its total saleable steel inventories relatively low. Stockyard and on-the-road inventories have together registered a 9.16 per cent increase to 131,000 tonne against 120,000 tonne piled up during 1995-96.

Tisco's outgo on account of MAT is expected to be around Rs 89.4 crore while its depreciation costs are expected to go up to Rs 310 crore from the previous year's figure of Rs 297 crore.

"We expect a slight increase in the other income contribution on account of the company's Rs 500-crore bonds issue," an analyst said.

Analysts have put a sell on Tisco stock primarily on account of the poor steel scenario. "Even though the international prices of steel started improving in December the domestic manufacturers did not dare to match the increase on account of the over capacity and poor offtake," analysts said. This has forced the steel producers to export which resulted in lower realisation, they added. Even though there could be a second round of price hikes soon, this would only bring the domestic prices to the December levels of international prices, analysts added.

Dull results seen

The market does not expect a strong performance from Tisco, which is set to announce its results today. Brokers say the companys stock is likely to move in a narrow range for the next six months.

Says Sanjay Agarwal, CEO, Lloyds Securities: We expect the net profit for Tisco to be in the range of Rs 520 crore. This will be less compared to the previous year due to the sluggishness in the steel industry.

The stock was traded at Rs 178.25 against the previous days close of Rs 177.75 on the BSE.

According to Agarwal, the scrip will witness a surge in activity only if the demand for steel products go up.

The stock, however, is fully valued at Rs 177. It will move in a very narrow range though.

Brokers attribute the lacklustre performance to the overall sluggishness in the steel industry. Says R Venkatsubramanian of Kotak Securities: A lot is dependent on the industry recovery. There is luke warm response to the Tisco stock from the FIIs.

The bank holiday due to Buddha Poornima resulted in lacklustre trading on the bourses. The 30-share BSE Sensex opened at 3738.06, touched an intra-day high of 3742.53 and a low of 3714.20. It closed at 3730.78, registering a net loss of 4.23 points over the previous close of 3735.01. The total traded volume on the BSE was Rs 451.58 crore.

The NSE also witnessed similar trading sentiment. The NSE-50 opened at 1042.45, touched an intra-day high of 1043.80 and a low of 1034.35. It closed at 1037.20, registering a net loss of 4.80 points over the previous close of 1042. The total traded value of shares on the bourse was Rs 1,110.66 crore.