Steel Authority of India Ltd (Q1 FY14)

India Infoline News Service | Mumbai |

SAIL continued to report weak numbers in Q1 FY14, led by weaker steel sales volume.

CMP Rs44, Target Rs46, Upside 5.1%

  • SAIL continued to report weak numbers in Q1 FY14, led by weaker steel sales volume. EBIDTA/ton too was lower than estimate due to an increase in all costs, except raw materials. The underperformance in operating profit due to lower volumes and increase in rolling costs was somewhat offset by a decline in raw material costs. The underperformance in PAT was offset by a tax write back of Rs10bn in Q1 FY14.


  • SAIL reported a 4.7% yoy decline in its topline to Rs103bn, lower than our estimate of 111.5bn. The underperformance was due to lower volumes. The company registered an increase of 5.2% yoy in sales volume to 2.62mn tons, lower than our expectation of 2.9mn tons. Due to the subdued market conditions SAIL witnessed an increase in finished goods inventory. Production remained strong at 3.2mn tons, 10.3% higher on a yoy basis. An increase in share of value added products of total sales aided the company in registering a 3% yoy increase in realizations against our estimate of 1% yoy increase. Blended realizations for the quarter stood at Rs39,190/ton against Rs38,057/ton in Q4 FY13. We believe that realizations in the previous quarter were under pressure due to liquidation of inventory. We expect prices to remain steady in Q2 FY14 due to the depreciation in the Rupee against the dollar.


  • Operating profit for the quarter declined 36.2% yoy to Rs9.7bn, lower than our estimate of Rs11bn. The underperformance in operating profit was largely due to lower volumes and an increase in rolling cost. A decline in raw material costs curtailed the underperformance in operating profit. Raw material costs per ton of steel declined by 11.3% qoq, which was a positive surprise to us. Employee costs jumped 15.2% yoy, which was higher than our estimate. Other costs per ton of steel too increased on a qoq basis. EBIDTA/ton for the quarter stood at Rs3,678/ton, marginally lower than our expectation.

Per ton analysis
(Rs mn)
Q1 FY14
 Q1 FY13
% yoy
Q4 FY13
% qoq
Steel production ('000 tons)
3.2
2.9
10.3
3.1
3.2
Steel sales ('000 tons)
2.6
2.5
5.2
3.2
(18.8)
Sales as a % of production
82.2
86.2
 
104.5
 
Net realisations
39,041
43,110
(9.4)
38,057
2.6
Cost per ton (Rs/ton)
 
 
 
 
 
Raw material
15,424
17,342
(11.1)
17,450
(11.6)
Personnel cost
8,725
7,970
9.5
7,634
14.3
Power and fuel costs
4,382
4,896
(10.5)
3,761
16.5
Other overheads
6,832
6,842
(0.1)
6,422
6.4
Total cost
35,364
37,049
(4.5)
35,267
0.3
EBIDTA/ton
3,678
6,061
(39.3)
2,790
31.8
Source: Company, India Infoline Research
  • PAT declined 43.5% yoy to Rs4.5bn which was lower than our estimate of Rs5bn. The decline in PAT was largely due to weaker operating profit. The decline in PAT was curtailed by a tax write back of Rs1.1bn. Finance costs moderated on a qoq basis by 10.6%.


  • Steel Authority of India Ltd (SAIL) has plunged since the start of 2013 on account of concerns over the delays in the company’s expansion projects, lower margins and the Government’s plan to divest its stake. The company’s results over the last two quarters have been quite lower than our estimate. Margins have shrunk to multi year lows which led to the sharp sell off in the stock. Demand for steel in the domestic sector has been quite subdued due to the weak demand from the automobile and infrastructure sector. We believe margins would remain under pressure in the near term for SAIL and hence revise our earnings estimate downwards. We maintain our Market Performer rating on the stock with a price target of Rs46.

Results table
(Rs mn)
Q1 FY14
Q1 FY13
% yoy
Q4 FY13
% qoq
Net sales
102,679
107,775
(4.7)
123,304
(16.7)
Material costs
(40,566)
(43,354)
(6.4)
(56,539)
(28.3)
BSE 78.25 0.55 (0.71%)
NSE 78.20 0.65 (0.84%)

***Note: This is a NSE Chart

 

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