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Tata Steel FY 09 First Quarter Performance

Fri, 15 Aug 2008 11:46:56 EST

Tata Steel FY 09 First Quarter Performance - by Narasimhan

COMPANY HISTORY

Tata steel, India’s largest and world fifth largest steel maker was established in the year 1907 by Jamshedji Tata. It is a Fortune Global 500 company raked 315 in the list. The company is operating in 24 countries and has trading links with over 50 countries. The company’s core business is manufacture of steel and Ferro alloys. In 2007 the company acquired Corus an Anglo-Dutch steel making company.

RECENT DEVELOPMENTS

The company recently set up Tata steel Global, a subsidiary of Tata steel, to manage and govern the international assets of the company including the Corus. The company is on talks with Vietnam Government to commission a 4.5 MT Greenfield project. It entered in to a Joint Venture agreement with Vietnam Steel Corporation and Vietnam cement Industries Corporation to set up a Steel complex in Vietnam. The company recently raised Rs.200 Billion through a private placement of redeemable Non-convertible rupee debentures. These securities has been rated AAA (High safety) by Fitch India.

FINANCIALS

The company announced its first quarterly results recently. These results are compared with the results of the previous quarter and are tabulated below.

Rs. Millions	Jun ' 08	Mar ' 08	Dec ' 07	Sep ' 07	Jun ' 07
Sales	61650.3	57366.9	49739.2	47850.9	41975.8
Operating profit	30245.8	24023.2	20966.1	20254.4	16991.7
Interest	2417.3	2338.9	3626.7	2021.5	799.9
Gross profit	27950.7	21959.6	18009.7	19176.1	17653
Depreciation	2168	2091.5	2092.1	2050.1	2112.4
Net profit / loss	14884	12055.1	10685.8	11908.3	12221.1
Equity capital	7307.8	7307.8	6091.7	6091.7	6091.7
EPS (Rs)	20.37	16.5	17.54	19.55	20.06
OPM (%)	49.06%	41.88%	42.15%	42.33%	40.48%
GPM (%)	45.34%	38.28%	36.21%	40.07%	42.06%
NPM (%)	24.14%	21.01%	21.48%	24.89%	29.11%

The company for the quarter ended June 30 2008 posted a net profit of Rs.148.8 Billion growth of 21.7% over the same period last fiscal. Sales revenue of the company for this quarter stood at Rs.616.5 Billion an increase of 46% as against the revenue of Rs.419.7 Billion posted in the same quarter last year. Steel business accounted for Rs.530.3 Billion of revenue and Ferro alloys business accounted for Rs.83.8 Billion of the total revenue. Total income soared by 30.3% to Rs.617.7 Billion from Rs.430 Billion posted in Q1 FY08.Rise in the raw materials and operating costs remained the major concerns for the company.

The company lost nearly Rs.30.3 Billion on the foreign exchange front due to the dollar appreciation adversely affecting the value of Convertible alternative reference securities (CARS) issued in September. Steel production for the quarter rose by 11% to 1,186,873 tons from 1,064,832 tons produced in the quarter ended June 30 2007.Hot metal production was at 1.387 MT and crude steel production was at 1.253 MT an increase of 3.2% and 8.6% over the same period last fiscal respectively. Sales to Automotive sectors steeply increased and the market share grew to 42% as against the share of 38% in Q1 FY08. Sales of skin panels moved to 7477 tons as against 4248 tons sold in the corresponding quarter previous year.

COMPANY OUTLOOK

The company is planning to increase its manufacturing capacity through Brownfield and green field expansions. In June 2008, through Brownfield expansion the company expanded its production capacity in Jamshedpur plant to 7MTPA from 5MTPA.It is also planning to set up Greenfield plants at Jharkhand and Chattisgarh plants. In the last quarter the company substituted Jhama coal for expensive raw petroleum coal and thus reducing the input costs to a large extent.

The company is looking for acquisition of steel and raw material facilities in the South Asian countries. India is poised to be a major self-sufficient, low-cost steel manufacturing nation. Currently India produces 53 MTPA steel, (4% of global steel production), and consumes 59 million tons. This works out to a per capita consumption of steel of 49 kgs. China, by contrast, currently produces 489 million tons of steel (36% of global steel production), and consumes 420 million tons. The per capita consumption of steel in China therefore works out to be 318 kgs. – Approximately 6.5 times that of India.

It is broadly recognized that over the years India has fallen behind its Asian neighbors in keeping pace with investments in infrastructure. The availability of steel would be one of the important factors in such an essential development plan. Large public works schemes and infrastructure projects would provide tens of thousands of jobs through the construction of roadways, power plants, water projects and agriculture related schemes. Evidence seems to indicate a direct correlation between the level of domestic steel production in a country and its investment level.

India is still a net importer of steel. It would not seem out of the realm of reality that India could support a domestic steel capacity of 100 million tons per year, with domestic consumption being, say, 85-90% of that output. If this capacity were based on maximizing the use of domestic iron ore and coking coal, such self-sufficiency could help insulate the country from the runaway price spiral and currency fluctuations that impact investment in infrastructure and industrial capacity.

STOCK OUTLOOK

The stock is trading at the level of Rs.600-630. The stock has been in a long term correction since May 2008.The stock has given up all gains that have earned in the period of January-May losing more than 50%. This long term downward run took a temporary halt at the key long term support of Rs.580. The stock has strong support at Rs.580 and resistance level at Rs.690.Short term investors may pick this stock at this level and investors with long term perspective may accumulate this after the price gets stabilized at the level of Rs.660.

Larsen and Toubro FY09 First Quarter Performance

Thu, 14 Aug 2008 12:04:08 EST

Larsen and Toubro FY09 First Quarter Performance - by Narasimhan

COMPANY HISTORY

Larsen and Toubro (L&T), one of the India’s largest engineering conglomerates, was founded in the year 1938 by two Danish engineers, Henning Holck-Larsen and Soren Kristian Toubro at Mumbai. The company first carried on the business of importing machineries from Europe, and then rapidly took on engineering and construction assignments of increasing sophistication. L&T is now make its mark in the areas of Construction, hydraulic equipment, electric and electronic power services, fertilizer projects, medical electronics and information technology. It generates almost 85% of its revenue from the construction business. L&T’s engineering and construction, implements turnkey projects in major core and infrastructure sectors of Indian industry. The company is executing large scale Turnkey projects by accessing technical know-how from many global companies.

The company has integrated its strengths in process technology, basic and detailed engineering, equipment fabrication, procurement, project management, erection, construction and commissioning, to offer single-point responsibility against stringent delivery schedules.

L&T’s Electrical and Electronics segment comprises manufacture and sale of low-voltage switchgear and control gear, custom-built switchboards, petroleum dispensing pumps and systems, electronic energy meters/protection systems, control and automation products and medical equipments. Medical equipments and systems manufactured by L&T include advanced ultra sound scanners and patient monitoring systems.
The company also made its mark in the IT sector, with instituting L&T InfoTech ltd., a 100% subsidiary of L&T. The company offers comprehensive, end- end software solutions and services with a focus on manufacturing, BFSI and communication and embedded systems.
The Machinery and Industrial products segment comprises manufacture and sale of industrial equipment and machinery, marketing of industrial valves, construction equipment and welding/industrial products. It also markets hydraulic excavators, aggregate crushers, vibratory compactors etc.

FINANCIALS

The company announced its first quarter results recently. They are compared with the past quarterly results in the table below

Rs Millions	Jun '08	Mar ' 08	Dec '07	Sep ' 07	Jun ' 07
Sales	69927.6	85775.5	64618	54999.4	45738.7
Operating profit	6573.6	11181.3	6902.9	5863.1	4230.5
Interest	382.4	498.6	438.4	132.4	157.2
Gross profit	8209.5	13173.2	7473.2	5964	6188
Depreciation	658.7	681.7	527	483.2	424.1
Net profit / loss	5024.4	9667.6	4817.9	3480.2	3768.5
Equity capital	584.8	584.7	583.7	573.6	567.6
EPS (Rs)	17.18	33.07	16.51	12.13	13.28
OPM (%)	9.40%	13.04%	10.68%	10.66%	9.25%
GPM (%)	11.74%	15.36%	11.57%	10.84%	13.53%
NPM (%)	7.19%	11.27%	7.46%	6.33%	8.24%

The company for the quarter ended June 30 2008 reported a growth of 33.33% in net profit to touch Rs.5024.4 Million as against Rs.3768.5 Million reported in the corresponding quarter last year. But when compared to the last quarter results, profit declined by 48%. Sales grew up by 53% to Rs.699 Billion from Rs. 457 Billion posted in the same quarter last year. The company provided Rs.658.7 Million for depreciation an increase of 55% as against the provision made in the same quarter last year. The rise in the sales revenue, foreign exchange gain, soaring fresh orders from all the sectors and efficient project management aided the company to book 33% growth in the profit level. OPM declined by 27% on QoQ basis and remained flat on YoY basis.

The company reported a strong order book with total order worth Rs.5,819 Billion, an increase of 40% over the same period last fiscal. The company received orders from all the major sectors especially received bulk orders from Railways to build a cast wheel manufacturing plant at Bihar and also a power plant order. Order inflows in the Engineering and Construction (E&C) segment witnessed a growth of 28% over the same quarter last year. E&C segment sales grew by 59% to Rs.554 Billion on YoY basis. International orders accounted for 16% of the total E&C segment’s order book. The Machinery and industrial product segment of the company registered a growth of 50% over the same period last fiscal. The growth in the welding systems businesses, valves and industrial machinery businesses aided the company to deliver higher operating margins.

Electrical and electronics segment of the company reported a growth of 7% in the sales revenue. Exports contributed 12% of the total sales revenue. As compared to the previous quarters the growth in this segment is low due to the increasing input costs and sluggish demand prevailed in the market. All other segments like technology services and property development etc also performed well and reported a growth of 3% in the margins. The construction and mining equipment businesses of the company also performed well in the last quarter.

COMPANY OUTLOOK

The company is planning to pump nearly Rs.250 Billion for capital expenditure plans in this fiscal. It got assent from the shareholders to raise Rs.240 Billion through placement with Qualified Institutional Buyers. The company reported that these funds will be utilized to meet the needs of the growing business. It recently bagged orders totaling worth Rs.254 Billion from Tata Steel to set up a 6 Million TPA pellet plant and a blast furnace at Jamshedpur. It also received orders worth Rs.75 Billion and Rs.52 Billion worth orders from SAIL and Hindustan Zinc respectively.

The company expects to bag Major contracts from the defense sector in the forthcoming quarters. It is also looking forward for more business opportunities from the Aero Space business. The company expects to receive more orders in the Persian Gulf and set up five offices to tap demand in that market. The company is focusing on strategies to offset inflation pressures and other Macroeconomic challenges. As the demand in the infrastructure power and steel companies are heading upwards the company’s order inflow and sales growth is expected to increase steeply in the upcoming quarters.

STOCK OUTLOOK

The stock is now trading at the level of Rs.2750-2850. The stock is now in a short term upward trend. It gained nearly 17% in the last one month. The stock has strong support level at Rs.2230 and resistance level at Rs.3000 and then at Rs.3200. As the company has a healthy order pipeline and also market conditions are good this stock will be a good pick for both near and long term investors at this price.

Suzlon Energy Fy 09 first quarter performance

Wed, 13 Aug 2008 08:23:08 EST

Suzlon Energy Fy 09 first quarter performance - by Narasimhan

Suzlon Energy, India’s first indigenous wind technology company, was incorporated in the year 1995 by Mr. Tulsi Tanti. Now the company is the fifth largest wind turbine manufacturer in the world and the largest in India and Asia. Suzlon provides a wide gamut of services and it includes providing total solutions in wind power generation with consultancy, design, manufacturing, installation, operation and maintenance services. The Company’s R&D system leverages the growth of the company.

The company owns a technology development centre at Germany and R&D centre at Netherlands for rotor blade molding and tooling and wind turbine manufacturing facilities in India. Suzlon recently acquired Hansen Transmission, Belgium based Wind gearbox manufacturer. This acquisition afforded the company to build up technological and manufacturing capabilities in the Wind Gear box segment and other areas. The company has wide global network and is operating projects at Australia, Brazil, China, Italy, Portugal, South Korea Turkey and United States. To enhance its global projects the company installed manufacturing units capable of producing Wind Turbine machineries and wind turbine systems at Belgium, United States, and China. The company holds nearly 10.5% share in the global market. Now, the company has the total production capacity of over 3000 MW.

RECENT DEVOLEPMENTS

· Suzlon Wind Energy Corporation recently bagged an order amounting $240 million from Horizon Wind Energy of United States, to supply 200 MW of wind turbine.

· The company plans to enter in to Solar and Bio-fuel Business. The company is conducting feasibility study for the further approach in this business. This will help the company to produce 10-20 MW additionally.

· Suzlon recently acquired 30% stake in RE power Systems, a German based wind turbine firm, from French nuclear major Areva. The company with this acquisition is now having total stake of 66% in the REPower Systems.

FINANCIALS

The company announced its first quarter results recently. These results are compared with the last quarter results and are tabulated below.

Rs Millions	Jun ' 08	Mar ' 08	Dec ' 07	Sep ' 07	Jun ' 07
Sales	14705.9	27444	16549.6	16874.6	8391.9
Operating profit	3170.4	6158	3940.2	3861.2	1127.6
Interest	382	324.8	357.5	282.1	289
Gross profit	3045.3	6257.5	3864.7	3891.8	1075.7
Depreciation	217.1	249.6	245.1	190.3	177.1
Net profit / loss	880.4	4825.5	3381.8	3555.8	894
Equity capital	2993.9	2993.9	2993.9	2879.8	2877.7
EPS (Rs)	0.59	3.22	2.26	2.47	0.62
OPM (%)	21.56%	22.44%	23.81%	22.88%	13.44%
GPM (%)	20.71%	22.80%	23.35%	23.06%	12.82%
NPM (%)	5.99%	17.58%	20.43%	21.07%	10.65%

Net profit of the company for the quarter ended June 30 208 declined by 1.5% and stood at Rs.880.4 Million as against the same quarter last fiscal and on QoQ basis the profit declined by 81%. The company’s first quarter numbers have taken a hit primarily on account of foreign exchange loss. Escalation in the raw material prices and other expenditures remained major concerns for the company in this quarter. Sales Revenue for this quarter moved up by 42% to Rs.276 Billion from Rs.194.4 Billion reported in the same period previous year.

EBITDA margin moved up to 15.36% from 7.83% on YoY basis. Despite this growth in the sales revenue, Profit after tax (PAT) declined due to huge provision made for the foreign exchange loss of Rs.146 crore. As on July 30 2008 the company’s order book had orders worth nearly Rs.1649 Billion. The domestic orders and international orders amounted for Rs.144 Billion and Rs.1504 Billion respectively. The export order includes Rs.700 Billion from US, Rs.250 and Rs.220 Billion worth orders from China and Australia respectively. The company received orders worth Rs.320 Billion from European markets and an order worth Rs.145 Billion from DLF India to install 71 turbines. The company reported that DLF’s order is one of the largest order ever in India and if it is installed it will make DLF the owner of the largest single wind portfolio in India.

COMPANY OUTLOOK

The Global wind energy council recently reported that, by the year 2020 12% of the world’s electricity will be generated from wind. Increasing oil prices, development in the field of renewable energy generation, and climate change concerns have increased the demand for wind energy. The company recently entered in to a joint venture with Arabian company acquired Honiton energy of China and it is now holding 25% stake in it. The company reported that the joint venture will favor the company to sell more turbines as the acquired company has good order pipeline and it will aid the company to expand its market in china. The Blade Retrofit program commissioned by the company in the last quarter is expected to complete in this financial year. The order pipeline of the company looks good and it is expected to receive many overseas orders in the upcoming quarters. It is planning to raise a total of Rs.500 Billion through issuing various securities.

In the last financial the company already received Rs.218 Billion by issuing shares to Qualified institutional Buyers. The company reported that the funds received will be used to refinance the financial assistance it obtained from international lenders for various acquisitions. The company expects that the Cumulative global installed capacity will grow to 287940 MW in 2012, which was 94005 MW in 2007. As the company is having a healthy order pipeline and the prices of turbines are increasing it is expected that the company will post good results in the forthcoming quarters.

STOCK OUTLOOK

The stock is now trading at the level of Rs.230-250. The stock had a year high of Rs.460 and hit year low of Rs.174 on the first of last month. The stock is now in a near term upward trend and gained nearly 31% in the last one month. Both near term and long term investors may accumulate this stock at this level.

Indian economy slows down

Tue, 12 Aug 2008 21:25:10 EST

Indian economy slows down - by Narasimhan

Manufacturing sector along with infrastructure slowed down in the first quarter of the current year with pronounced lower growth in June 08 according to reports circulated on economic growth so far during the year. Overall growth in industrial sector was 5.4% less than two third of 8.9% recorded a year earlier. Surprisingly consumer durable industry registered a growth of 10% something that surprised the analysts. During June 08 manufacturing sector grew by 5.9% as against 9.7% it recorded in the previous year. In the first quarter April – June 08 manufacturing industries posted a growth of 5.6% almost half of 11.1 % that they had posted in FY 0708.

Since there was a recovery in the consumer durable industry which grew by 3.5% in June 08 as against negative growth of 3.6% posted last year, the overall year on year growth in the consumer durable sector is at a healthy 10% during the year, signaling industry’s coming out of the down trend.

There has been a marked deceleration in infrastructure industries during June 08 especially in electricity generation. Monsoon rains have not been even especially in the catchments area of the hydroelectric dams leading to lower generation of hydro electric generation. Lower industrial output growth has also affected demand and generation of electricity. Electricity generation grew at 2% as against 8.3% posted in the precious year. Overall growth in infrastructure is placed at 3.5% which is lower as compared to 6.4% recorded in the previous year. Coal sector posted a growth of 6.2% as against 0.9% a year ago, significant enough to dent the rising energy cost obtained through crude. However crude oil and refinery output have slowed down to negative 0.2% and 3.3% respectively as compared to 07% and 13.3% respectively in the previous year.

Summing up the overall industrial growth is expected to be supportive of economic growth of 7.7% during the current fiscal. Rising commodity prices slow in US and European markets and increasing interest rates are likely to moderate the economic growth which was expected to be around 8% earlier. Investors need to watch the industries and carefully shuffle their investments as the slow down signals retarding in wealth growth therefore the values in the stock market.