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Whim Wallop

The company has been able to maintain high performance levels despite uncertainties

Profile
All essential commodities imported by the government are done through the State Trading Corporation of India (STC), including oil & gas, edible oils, pulses, sugar etc. It also imports technical and security equipment on behalf of Forensic Science Laboratories, State Police and Intelligence Departments and Paramilitary organisations. As can be imagined, the major part of its revenues come from importing goods.

Fundamental Performance
Since this is a trading company, operating margins are extremely thin. Moreover, since most imports are at the bidding of the government, many times it has to do so at higher prices and sell at low ones. This squeezes operating margins. Still over the years, it has been able to post decent profits and give regular dividends. From a Rs 19 crore profit in FY05, the company, in the last fiscal, has ramped up its profit to Rs 208 crore. The company has got close to Rs 650 crore as cash and investments on its books with a dividend payout ratio of 33 per cent. Till March 31, 2009 the company had borrowed close to Rs 2,377 crore.

Stock Performance
Over the past 3 years the stock has gained nicely to turn in returns of 67.11 per cent yearly. But before peak of bull rally in 2007 the stock was a non-performer. Between 2003 to mid-2007 the stock price hovered around Rs 70-Rs 90 level. This was a testing time for investors. The stock is currently trading at Rs 347 with a PE of 24.18 and dividend yield of 2.23. Comparing this stock with any other trading company is difficult due to its very basic nature — it can’t even profit from arbitrage opportunities as the selling prices are often dictated by government. Hence to expect the company to have better operating numbers than any private company is not the objective of the management and it shows in the numbers. Compared to its historic figures the stock is trading at an 86 per cent premium to its 5-year median PE.

History
A British era product, the post-Independence mandate of STC was to export goods to East Europe and import finished products. Now, it imports essential items and develops products for exports. It is run by the Ministry of Commerce & Industry.

Back to Story: Profit from PSUs
Alse see: State Trading Corporation of India  (STC)
This article was previously published in October 2009 issue of Wealth Insight