Tata Steel: proves its mettle
Business Standard — October 30, 2007

Higher sales, better realisations counter-balances the damage caused by the surging rupee.

Tata Steel reported an improved performance in the September 2007 quarter. Higher steel sales and better yearly realisations helped the company to offset the damage caused by the surging rupee. However, the stock tanked over 9 per cent on Monday.

Tata Steel's core operating profit grew 18.8 per cent y-o-y to Rs2025.4 crore in Q2 FY08, while its net sales improved 13.9 per cent to Rs4785.1 crore. Its operating profit margin also improved 180 basis points y-o-y to 42.3 per cent. However, the results do not account for earlier acquisition of UK-based Corus.

The standalone operating profit margin in the June 2007 quarter was steady on a y-o-y basis at 40.5 per cent, although not strictly comparable.

Meanwhile, the company sold 1.22 million tonnes of steel in the September 2007 quarter, which is a growth of 2.9 per cent on a year-on-year basis.

The realisations in Q2 FY08 were estimated at Rs39,275 a tonne, a y-o-y rise of 10.7 per cent. The estimated realisations of standalone entities in June 2007 quarter were Rs36,664 a tonne, a y-o-y growth of 18.3 per cent.

The domestic steel demand is expected to be strong in the next few quarters. Tata Steel's proposed rights issue, which will aggregate Rs5481 crore, is expected to dilute equity on its existing capital of Rs609.1 crore, by about 45-46 per cent. At Rs900, the stock discounts 8 times its estimated consolidated FY09 earnings and provides room for an upside.

SBI: Healthy state of affairs
The September quarter results of SBI have been in line with those of other public sector banks. The growth in profits has come from higher non-interest income, while interest income has languished.

The bank's net interest income grew by a modest 6.3 per cent to Rs3763 crore as the 129 basis points increase in yield on advances was negated by a decline of 18 basis points in yield on investments and a rise of 97 basis points in cost of deposits.

The proportion of current and savings accounts dipped by 320 basis points on a year-on-year basis. As a result, the net interest margins softened by 18 bps to 2.84 per cent.

The bank's other income jumped 42 per cent to Rs2042 crore due to 12 per cent growth in commission and brokerage (highest component), huge profits on the sale of investments (including stocks) and doubling of forex income.

The bank's success in controlling its operational costs and managing non-performing assets (NPAs) was noteworthy. A mere 2 per cent rise in staff costs helped in controlling the increase in operating expenses at 8 per cent.

Gross NPAs declined from 3.38 per cent to 2.92 per cent y-o-y, though net NPAs remained constant at 1.6 per cent levels.

The stock of SBI has gained 90 per cent in the past year compared with the Sensex's 54 per cent, and trades at 2.5 times and 2.2 times its estimated FY08 and FY09 book value respectively.

Besides core banking, the insurance and asset management subsidiaries and the merger of associate banks could act as triggers, going ahead.