Thursday, January 20, 2011

Tinplate - Analysis


Tin plate in packaged foods is still at a nascent stage. The per capita tin consumption in India is only 0.3 kg compared to 1 kg in China and 8-12 kg in developed nations.

Tinplate, being the market leader, is likely to benefit from the rising demand for packaged foods from urban population and increasing use of tin plates in packaged foods. The gradual rise in confidence about the growth of Indian economy has been clearly reflected in stock price of Tinplate Company for the past several months.

Also, the company gets 25-30 per cent of its revenue from exports and the recent signs of a recovery in global economies have improved investors’ confidence about the company’s future earnings.

While there are signs of a demand uptick for its products, the company is on track to expand its production capacity by 2 lakh tonnes, a rise of more than 50% in production capacity of its finished products.

In October, the company announced installation of equipment for this proposed expansion plan. All these events have fuelled the stock price movement.

Before the 27 per cent rise in stock price this week, the stock was trading at a forward price-earning multiple of close to 6. This appears to be lower, considering its historical P/E multiple of 8-12.

However, this week’s rise in stock price has raised its P/E multiple close to 8. But if the economy continues to grow at this pace, it is bound to reach higher P/E multiples and will offer good return.
Tata Steel's holding in Tinplate would rise to 60 per cent from April next year following the conversion of fully convertible debentures. Tinplate will then become a subsidiary of Tata Steel.
The full benefit of the company's expansion plan due for completion in the middle of next year would be seen from the 2011-12 fiscal.

On completion, the company will become one of the largest self sufficient tinplate producing facilities across South East Asia and West Asia.

The bulk of the Rs 627-crore expansion programme currently in progress was being financed by equity and internal generation. Earlier debt was three times the equity, and now the ratio has been brought down to less than 0.5.


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