Hot As Steel

Updated: Feb 28 2003, 05:30am hrs
Tata Sponge Iron (TSIL) stock has more than doubled to Rs 35 from its 52 - week low of Rs 16 spurred by its steadily improving financial performance during the last three quarters. Production and dispatches of sponge iron at 1.8 lakh MT and 1.7 lakh MT respectively during the nine months to December 2002 are the highest so far since the companys inception. Lately, India has emerged as among one of the largest producers of sponge iron in the world.

TSILs turnaround during the quarter to December 2002 is significant even though it has come on the back of better performance of the steel sector, its main user industry. Both demand and price realisations of steel have been picking up indicating that any fresh supply of sponge iron can be absorbed by the market. Consequently, TSIL has decided to expand its sponge iron manufacturing capacity to cash in on the likely boom. This will be done through the installation of the third kiln having a capacity of 1.5 lakh tonne per annum, which will raise capacity to 3.9 lakh tonne. The estimated cost of expansion is pegged at Rs 67.4 crore. The project will be financed by borrowings and retained earnings.

Net sales grew 10.7 per cent to Rs 31.3 crore. Bulk of the growth must have come due to higher price realisations than the sales volume. This is evident from a fall of 8.4 per cent raw material consumption (net of stock variations) to Rs 18.5 crore. Its share of sales came down from 71 per cent to 59 per cent. The fall is difficult to explain as price of coal, which accounts for 70 per cent of total raw material cost, was up. The company did well to keep a tab on staff cost as well as reduce other expenditure by eight per cent to Rs 6.1 crore. As a result, operating profit was Rs 5.1 crore (loss of Rs 0.1 crore). Bottomline stood at Rs 0.9 crore (loss of Rs 2.5 crore).

Although prospects for TISL look promising, much will depend on the duration of boom in demand for steel and prices.

Sterling Biotech
Sterling Biotech (SBL) that turns out pharmaceutical grade gelatin has posted excellent growth during the year to December 2002. Its net sales soared by 60 per cent to Rs 189.3 crore, while operating profit by 79 per cent to Rs 84 crore. The commissioning of second manufacturing facility at Vadodara in collaboration with Croda Colloids of UK, focuses on the biotech sector. That also helped the company to better its performance. However, net profit growth was restricted to 6.4 per cent at Rs 21.6 crore, because of high depreciation and interest. SBL hived off its tea division in order to concentrate on high growth areas last year. The Vadodara plant measures up to quality standards and regulatory approvals from Europe and the US. This plant turns out products for usage in the manufacture of hard and soft-shell capsules, vitamin encapsulation and tablet binding in the pharmaceutical industry. It also produces di-calcium phosphate as a by-product used in pharmaceuticals, poultry feed and fertiliser industry.

SBL has strengthened in as much as the second plant aids in improving quality of product mix. This also has led to further improvement in operating margins. OPM has risen to 44.5 per cent (40 per cent). Raw material consumption grew two-fold to Rs 112.7 crore as a result of higher operations. Staff cost was up 30 per cent to Rs 5.1 crore and other expenses 152 per cent to Rs 61.4 crore.

SBL is confident about its future growth. Its association with Cardinal Health Inc is expected help it consolidate its presence in the US market.

It has recently bagged a Rs 5.5 crore order from Cardinal Health, a global provider of health care products and services.

SBL has obtained a European Directorate of Quality Medicines Certification (EDQM) that should help it expand its market in the European Union countries too.

Manish Joshi & Laxmikant Khanvilkar