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TataSteel: Negative Returns Over Five Years

Tatasteel fell below Rs. 400 on Friday, as it announced dismal results in 2012. With an EPS of just Rs. 4 for the last quarter of FY 2011-12, and a drop of 42% in full year EPS (Rs. 53.63) compared to the earlier year (Rs. 92.86), the share price doesn’t look quite that cheap either.

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For the last five years results have been zig zag:

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While revenue has recovered after the financial crisis, EPS is just not working out. The Rs. 99 EPS last year was great due to a nice series of restructuring accounting points, which is basically funny money. But obviously that doesn’t last. At current prices, the stock trades at a P/E of 8 which is pretty much fair value for a company that sells a commodity.

Oh and that’s not counting the massive FCCB payment that is coming in 2014. They had rolled over earlier FCCBs in 2009, so there is an obligation of $1.09 billion coming up in November 2014, or the share price needs to be Rs. 605 or more. That’s a 50% gain in the next two years that Tata Steel hopes will happen.

Five years ago, in April 2007,when Tata announced the Corus buyout structure, I wrote a post saying the company was "not worth it". The price then was Rs. 505. Since then there have been Rs. 80 worth dividends (of which the last Rs. 12 is only going to be paid in the months ahead)

Five years, and India’s largest steel conglomerate, one that has been hailed internationally, has given NEGATIVE returns on the stock, even including dividends. Five years of nothingness, and I’ll soon show that this is actually good – many of the other big guns have just killed themselves.