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Sunday, September 21, 2008

Is this the time for Tisco?

During the glory days of the Bombay stock market - when there was no NSE, no Internet, no Reliance, no Bharti - the traders used to flock to Dalal Street to make their fortunes by trading Tisco (i.e. Tata Steel) shares.

It was the bellwether of the stock market till new age stocks like Reliance and Bharti pushed it to the background as a 'widows' stock. So it stayed in the background, while continuing to churn out excellent results by curtailing costs and judiciously expanding capacities.

Then Ratan Tata and his team decided enough was enough and it was time to look ahead and become a global player through acquisitions. Tisco made preliminary forays in South East Asia, buying plants in Thailand, China, Singapore, Vietnam. And then came the crowning glory - the Corus acquisition, that catapulted Tisco to the worldwide 6th position in the steel industry.

Historically, acquisitions have known to be value destructive for shareholders, and the jury is still out about the success of integrating Corus with Tisco. Already margins have been affected though turnover has risen manifold. Tisco management is working on that by trying to secure raw material sources globally, mainly for Corus that needs to buy its raw materials (and unlike Tisco which is an integrated plant).

However, the stock that had touched Rs 970 just a few months back, with no dearth of buyers, is now down to Rs 470 odd. That gives Tisco a Trailing Twelve Months (TTM) P/E of 6.7 and a P/BV of 1.6 as per June '08 results.

Technically also, the indicators are heavily oversold and ripe for an upward spurt. That does not mean Tisco can't go down to Rs 400 level. But for those who are trying to build a portfolio, this is a very appropriate time to enter.

An interesting bit of trivia for those who are still not convinced. The June '08 quarter's net profit of Rs 1686 Crores is just about Rs 130 Crores less than the net profit of ALL the listed cement companies (yes, that includes ACC, Ultra Tech, Ambuja, Prism, Birla Corp, JK, Sree, Madras, India, Chettinad, and the rest from north and south India).

So, the short answer to the question is 'yes'. This is a great time for Tisco (I mean Tata Steel - as a long time shareholder I just feel more comfortable with Tisco!).

6 comments:

SG Money Mind said...

On a FCF basis, my screens showed Tata Steel is a value pick. My screens are also showing the same for Hindustan Zinc & Sesa Goa. What is your on these two?

Subhankar said...

Both Hindustan Zinc and Sesa Goa are fundamentally sound stocks. The Chinese slow down seems to be affecting the sentiment in Sesa Goa. I don't follow either stock so can't really comment further.

ssharma said...

I fully agree about your views about TISCO it has become particularly attractive after 26 september fall.Thanks.

Subhankar said...

As I keep reiterating on my blog posts and emails to investment groups, bear markets are great for picking up front line stocks. This is not the time for mid/small caps - unless you are very very sure about what you are doing.

Eswar Santhosh said...

This is not really a comment on your post since I agree Tata Steel is a good pick. But, you have been stating that "This is not the time for mid and small caps". Would be good if you can explain this with the backdrop of your experience. This is my first bear market and I was of the opinion that even though mid and small caps will go deep, far deep down than large caps AND would take time to start their own bull run, value picks could be found there. I am not trying to paint all stocks (mid/small) with the same brush. However, are you saying that one should pick up mid and small caps after the rout is completely over?

Subhankar said...

I feel that the best time to pick mid/small caps is when the first up wave of the new bull market - which is led by the stalwarts - comes to an end, and the second larger up move has not quite started. The prices will still be low, though may not be as low as they will get at the end of the bear market. But why get stuck with second/third rung stocks for long periods? My policy on such stocks is: buy high and sell higher!