SAIL (Q3 FY13)

India Infoline News Service | Mumbai |

Total steel sales increased 6.2% qoq to 2.76mn tons, lower than our estimate of 2.9mtpa. Share of value added products increased to 42% of the product mix compared to 39.7% in Q3 FY12. Total saleable steel production decreased 7.5% qoq to 3.1mn tons.

CMP Rs81, Target Rs73, Downside 10.2%

SAIL’s topline declined 1.4% qoq and 0.5% yoy to Rs106.7bn, lower than our estimate of Rs117.7bn. The underperformance was due to lower sales volume. Sales volume remained subdued due to subdued demand for both flat and long products and lower steel realizations. Increased competition in the steel industry has also affected profitability of the company. Total steel sales increased 6.2% qoq to 2.76mn tons, lower than our estimate of 2.9mtpa. Share of value added products increased to 42% of the product mix compared to 39.7% in Q3 FY12. Total saleable steel production decreased 7.5% qoq to 3.1mn tons. However, production of hot metal increased 5.7% qoq to 3.7mn tons due to an improvement in blast furnace by 3.9%. Crude steel production declined 13% on a qoq basis to 3.3mn tons but was flat on a yoy basis. Blended realizations decreased 7.1% qoq and 5.6% yoy to Rs38,660/ton. Flat product realizations declined 8% qoq to Rs33,400/ton while long product realizations declined 2.7% qoq to Rs37,340/ton. Total inventory for 9M FY13 increased 0.7mn tons to 1.63mn tons of which flat products constituted 65%.

Operating profit increased 2.6% qoq but declined 28% yoy to Rs11.4bn. The increase in operating profit was led by lower operating costs which declined 1.8% qoq to Rs95.3bn. Power and fuel costs as a % of sales decreased from 11.8% in Q2 FY13 to 10.4% on account of reduced consumption of furnace oil and lower specific energy consumption which declined 3% qoq. Raw material costs declined 8% qoq to Rs53bn due to lower coking coal costs and improved efficiency. As a result, coke rate was down 2.1% for the quarter. Average domestic coal prices declined 13.3% qoq to Rs6,500/ton. Staff costs and other expenditure were flat on a qoq basis. Total cost per ton declined 7.5% qoq to Rs34,531/ton. EBITDA/ton for the quarter stood at Rs4,125 which was 3.2% lower on a qoq basis.

Per ton analysis
(Rs mn) Q3 FY13  Q2 FY13 % qoq Q3 FY12 % yoy
Steel production ('000 tons) 3.1 3.3 (7.5) 3.0 1.7
Steel sales ('000 tons) 2.8 2.6 6.2 2.6 5.3
Sales as a % of production 90.4 78.8
87.3
Net realisations 38,660 41,616 (7.1) 40,950 (5.6)
Cost per ton (Rs/ton)




Raw material 16,605 17,743 (6.4) 18,075 (8.1)
Personnel cost 7,542 8,038 (6.2) 7,117 6.0
Power and fuel costs 4,036 4,900 (17.6) 4,307 (6.3)
Other overheads 6,352 6,669 (4.8) 5,416 17.3
Total cost 34,535 37,350 (7.5) 34,915 (1.1)
EBIDTA/ton 4,125 4,267 (3.3) 6,035 (31.7)
Source: Company, India Infoline Research

PAT declined 11% qoq and 23% yoy to Rs4.84bn which was higher than our estimate of Rs3.9bn. The decline in PAT was led by higher interest which increased 19% qoq to Rs2.2bn. A forex loss of Rs307mn affected the profitability of the company. The tax rate for the quarter was stable at 31%. SAIL Board approved an interim dividend at 16% of the company’s paid-up capital as against 12% last year.

Rourkela steel plant (RSP) and IISCO steel plant (ISP) made significant progress in the expansion projects. The new coke battery and blast furnace at RSP will commence production in a couple of months whereas the new sinter plant has already started production. At ISP, the new coke oven battery, the power & blowing station and the wire rod mill will start operations from this quarter. Dispatches from the new sinter plant to Bokaro steel plant have commenced. The company aims to increase saleable steel production by 1mn ton in FY14. ISP and RSP will contribute roughly 0.4mn tons and 0.6mn tons respectively.

We believe that SAIL will remain an underperformer hence forth on account of subdued market conditions, increase in royalty of raw materials and slower ramp up of its modernization and expansion program. We have lowered our FY13 estimates on account of lower than expected steel sales volume. However, we have marginally upgraded our FY14 estimates taking into account the sharp decline in coking coal prices. At the CMP, the stock is trading at 6.9x FY14E EV/EBIDTA, higher than its domestic as well as international peers. We assign no value to the company’s CWIP, given the dismal track record of SAIL’s execution capabilities. We maintain our SELL rating with a revised 9-month price target of Rs73.

Results table
(Rs m) Q3 FY13  Q2 FY13 % qoq Q3 FY12 % yoy
Net sales 106,701 108,202 (1.4) 107,288 (0.5)
Material costs (45,831) (46,133) (0.7) (47,356) (3.2)
Power and fuel costs (20,815) (20,898) (0.4) (18,645) 11.6
Personnel costs (11,140) (12,739) (12.6) (11,285) (1.3)
Other overheads (17,531) (17,339) 1.1 (14,191) 23.5
Operating profit 11,384 11,093 2.6 15,811 (28.0)
OPM (%) 10.7 10.3 42 bps 14.7 (407) bps
Depreciation (4,049) (4,026) 0.6 (4,093) (1.1)
Interest (2,220) (1,862) 19.3 (1,855) 19.7
Other income 2,209 2,255 (2.1) 3,837 (42.4)
PBT 7,323 7,460 (1.8) 13,700 (46.5)
Tax (2,173) (2,448) (11.2) (2,716) (20.0)
Effective tax rate (%) 29.7 32.8
19.8
Adjusted PAT 5,150 5,013 2.7 10,984 (53.1)
Adj. PAT margin (%) 4.8 4.6 19 bps 10.2 (541) bps
Reported PAT 4,843 5,431 (10.8) 6,321 (23.4)
Ann. EPS (Rs)* 5.0 4.9   2.7 10.6   (53.1)
Source: Company, India Infoline Research

Financial summary
Y/e 31 Mar (Rs m) FY12 FY13E FY14E FY15E
Revenues 466,582 470,057 514,888 619,233
yoy growth (%) 7.5 0.7 9.5 20.3
Operating profit 64,163 58,694 83,160 126,748
OPM (%) 13.8 12.5 16.2 20.5
Pre-exceptional PAT 38,674 29,292 39,216 65,657
Reported PAT 35,931 29,292 39,216 65,657
yoy growth (%) (28.3) (18.5) 33.9 67.4





EPS (Rs)* 9.4 7.1 9.5 15.9
P/E (x) 8.7
BSE 80.15 0 (0%)
NSE 79.90 [0.35] ([0.44]%)

***Note: This is a NSE Chart

 

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