INDUSTRY UPDATES - 15/06/2013
The government’s decision to postpone the follow-on public offering of trading company MMTC Ltd in 2010 has cost it dearly. While the market has been more or less flat in the past three years, MMTC’s value has reduced considerably. Of course, one can’t say this based on the publicly traded price of MMTC shares. With a floating stock of just 0.67% of the total equity capital, the company’s traded price has been out of whack for quite some time now.
In the past three years, the shares have fallen by about 85% to Rs.210. And still, the government had to apply a huge discount of over 70% to the current traded price to attract investors for the company’s offer for sale (OFS) on Thursday. The floor price has been set at Rs.60. If the company’s traded price has always been far removed from business fundamentals, how can one say the government could have raised a much higher amount if it had gone ahead with the follow-on offer in 2010? This is simply because MMTC enjoyed much higher profits three years ago. In financial year 2009-10, it reported a net profit of Rs.216 crore. In the year ended March, the company’s adjusted profit of a little over Rs.100 crore was less than half those levels. Assuming the same price to earnings multiple, the government could have raised at least double the amount it will raise now.
MMTC’s profits have fallen sharply mainly because of the ban on iron mining in Karnataka, strictures on iron ore exports and increased railway freight for iron ore. Segment profit from minerals and iron ore stood at Rs.120 crore in FY10, and merely Rs.45 crore in FY13. The company’s other large profit centre is imports of precious metals, primarily gold. This business has been hit hard by government moves to curb gold imports. In FY13, revenues from the division fell by over 70%. With the government’s renewed call to citizens to curb gold purchases, it’s quite unlikely that MMTC, majority owned by the government, will increase its gold imports with gusto. While these two businesses have suffered, other segments such as imports of coal and farm products such as edible oils have done reasonably well and have provided the company’s profits the necessary cushion.
Even so, the company’s valuations look expensive inspite of the government’s seemingly discounted offer price of Rs.60 per share. This results in an equity valuation of Rs.6,000 crore and a price to earnings ratio of
nearly 60 times past earnings. The company has hardly any liquid assets to speak of either to justify such a high valuation.
TATA Steel completes upgrade of UK automotive coating line
TATA Steel has completed an upgrade of its corrosion resistant coating line in South Wales to improve and expand the company’s range of high value, high formability automotive steels.
The Zodiac plant is TATA Steel’s galvanizing line at Llanwern. Increasing the size of the radiant tube section of the line’s annealing furnace, where the steel is given the required mechanical properties ahead of the zinc coating process, has enabled an increase in capacity of about 25% to 500,000 tonnes per year.
Adding a second roll size to the temper mill, which levels the steel strip after coating, has allowed the move into high formability steels, while retaining the line’s ability to produce high strength and dual phase steels.
This GBP 3.6 million investment follows the relighting of the No 4 blast furnace at Port Talbot and the restart of the hot strip mill and pickling line at Llanwern.
Sri Lanka to ban foreign investments in to steel and cement
According to decision by the cabinet of ministers, Sri Lanka plans to ban foreign investments into steel, cement, retail trade, small scale agriculture and beauty care products, to 'protect' domestic investors.
Mr Keheliya Rambukwelle, Cabinet spokesman, said that relevant regulations would be made known later. He said that existing investors in the sectors will not be affected and it will not be with retrospective effect.
Asked whether the move will not further limit and harm competition Mr Rambukwelle said that the rules may be relaxed later, if there is no domestic investment within a given period.
The state information office said by the cabinet of ministers had appointed a committee under the senior minister of monetary co-operation had been appointed to revise current regulations
However, the government wanted to promote foreign investments into assembling of vehicles, refining petroleum products and making boats for the export market.
End of License raj will help rally iron ore market in China
Coming as a natural outcome of dependency on import and never receding influence of the 3 bigs (Vale, BHP and Rio) ,Chinese government has weeded out the last hurdle by abolishing import license requirement
The decision had an element of surprise with Chinese government always suspect about the devious methods of iron ore miners and coming ut with price index in a bid to rein the influence of powerful miners lobby.
It seems necessity and polity had an upper hand in this swift and liberalization. Market is yet to react but with free for all scenario will certainly see onrush of booking.
Remarkably irrespective of the sluggish market and shrill for production pruning in over supplied market import of iron ore and crude steel production have been on whirlwind course at roughly 65-68 million tonnes and 2.174 million tonne per day crude production.
Given the unrelenting fetish and anticipated monsoon rally in finished buying factors look certainly upwardly poised.