steel authority of india result updated

8/3/2019 Steel Authority of India Result Updated

1/12

Please refer to important disclosures at the end of this report 1

Particulars (` cr) 3QFY12 3QFY11 % chg (yoy) 2QFY12 % chg (qoq)Net sales 10,594 11,143 (4.9) 10,811 (2.0)EBITDA 1,581 1,763 (10.3) 1,327 19.1

EBITDA margin (%) 14.9 15.8 (89)bp 12.2 268bp

Adj. PAT 1,098 1,074 2.2 1,003 9.5Source: Company, Angel Research

For 3QFY2012, SAILs sales volumes were below our estimates, while its PAT was

higher-than-our expectations due to lower-than-expected raw material costs. Wemaintain our Neutral rating on the stock.Lower volumes affect 3QFY2012 net sales: During 3QFY2012, SAILs net salesdecreased by 4.9% yoy to `10,594cr (below our estimates of `12,239cr) mainly

due to lower sales volumes (-19.4% yoy to 2.6mn tonnes), partially offset by

increase in realizations (+17.9% yoy to `40,435/tonne).

Power and fuel costs dent SAILs EBITDA: Despite 17.9% yoy growth in realization,EBITDA dipped by 10.3% yoy to `1,581 mainly due to higher power and fuel (up

27.1% yoy). The company reported an exceptional item related to forex loss of

`466cr in 3QFY2012. Hence, reported PAT decreased by 42.9% yoy to `632cr.

However, excluding exceptional items, adjusted PAT grew by 2.2% yoy to

`

1,098cr (in-line with our estimate of`

1,083cr) during 3QFY2012.Expansion projects delay continues: SAIL has delayed the commissioning ofintegrated brownfield expansion in Bokaro of 1mn tonnes and Rourkela of 2mn

tonnes by two quarters to 1QFY2013 and 4QFY2013, respectively.

Outlook and valuation: SAIL is expected to increase its saleable steel productioncapacity from 12.5mn tonnes to 23.1mn tonnes by FY2015. However, the

company has reported delays and cost overruns in most of its expansion plans.

The stock is currently trading at an EV/EBITDA of 10.2x FY2012 and 8.2x

FY2013, a significant premium to its peers. Given the modest volume growth in

the near term and fair valuations, we maintain our Neutral view on the stock.Key financials

Y/E March (` cr) FY2010 FY2011 FY2012E FY2013ENet sales 40,551 42,720 44,023 50,721% chg (7.2) 5.3 3.0 15.2

Net profit 6,754 4,881 3,953 4,581% chg 9.4 (27.7) (19.0) 15.9

EPS (`) 16.4 11.8 9.6 11.1EBITDA margin (%) 24.5 17.7 13.9 16.8

P/E (x) 6.8 9.5 11.7 10.1

P/BV (x) 1.4 1.2 1.1 1.0

RoE (%) 21.9 13.7 10.0 10.6RoCE (%) 19.2 10.7 7.1 8.4

EV/Sales (x) 1.0 1.2 1.4 1.4

EV/EBITDA (x) 4.1 6.6 10.2 8.2

Source: Company, Angel Research

NEUTRALCMP `112

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code SAIL@IN

Shareholding Pattern (%)

Promoters 85.8

MF / Banks / Indian Fls 7.9

FII / NRIs / OCBs 3.4

Indian Public / Others 2.9

Abs. (%) 3m 1yr 3yr

Sensex 7.8 (0.4) 88.9

SAIL 13.4 (30.9) 23.8

10

18,202

5,532

SAIL.BO

46,219

1.2

177/73

561,590

Steel

Avg. Daily Volume

Market Cap (` cr)

Beta

52 Week High / Low

Face Value (`)

BSE Sensex

Nifty

Reuters Code

Bhavesh ChauhanTel: 022- 39357800 Ext: 6821

[email protected]

Steel Authority of IndiaPerformance Highlights

3QFY2012 Result Update | Steel

February 15, 2012


2/12

SAIL | 3QFY2012 Result Update

February 15, 2012 2

Exhibit 1:3QFY2012 performance(` cr) 3QFY12 3QFY11 yoy (%) 2QFY12 qoq (%)Net sales 10,594 11,143 (4.9) 10,837 (2.2)Raw material 4,736 5,299 (10.6) 5,156 (8.1)% of net sales 44.7 47.6 47.6

Consumption of stores & spares 657 581 13.1 652 0.8

% of net sales 6.2 5.2 6.0

Power & fuel 1,128 888 27.1 1,124 0.4

% of net sales 10.7 8.0 10.4

Staff cost 1,865 1,863 0.1 1,981 (5.9)

% of net sales 17.6 16.7 18.3

Other expenditure 762 886 (14.0) 740 2.9

% of net sales 7.2 8.0 6.8

Total expenditure 9,148 9,517 (3.9) 9,652 (5.2)

Operating profit 1,446 1,626 (11.1) 1,184 22.1Operating margin (%) 13.7 14.6 10.9

Other operating income 135 136 (1.1) 143 (5.6)

EBITDA 1,581 1,763 (10.3) 1,327 19.1EBITDA margin (%) 14.9 15.8 12.2

Net Interest income/(exp.) 185 201 (8.0) 234 (20.8)

Depreciation 409 379 7.9 394 3.9

Other income 13 11 22.6 57 (76.9)

Exceptional items (466) 33 (509)

Profit before tax 904 1,628 (44.5) 715 26.4% of net sales 8.5 14.6 6.6

Current tax 272 521 (47.8) 220 23.3

% Tax rate 30.1 32.0 30.8

Profit after tax 632 1,107 (42.9) 495 27.8Adjusted PAT 1,098 1,074 2.2 1,003 9.5


Exhibit 2:3QFY2012 Actual vs. Angel estimates(` cr) Actual Estimates Variation (%)Net sales 10,594 12,239 (13.4)

EBITDA 1,581 1,713 (7.7)

EBITDA margin (%) 14.9 14.0 92bp

Adjusted PAT 1,098 1,083 1.4



3/12


February 15, 2012 3

Result highlightsLower sales volumes lead to decline in net salesDuring 3QFY2012, SAILs net sales decreased by 4.9% yoy to `10,594cr, belowour estimates of `12,239cr mainly due to lower-than-expected sales volumes. Its

sales volumes decreased by 19.4% yoy to 2.6mn tonnes, while its blended

realization grew by 17.9% yoy to `40,435/tonne.

Exhibit 3:Sales volume stood at 2.6mn tonnes


Exhibit 4:Top line grew by % yoy


Power and fuel costs dent SAILs EBITDARaw-material cost and other expenditure decreased by 10.6% and 14.0% yoy to

`4,736 and `762cr, respectively (below our estimates). However, power and fuelcost increased by 27.1% yoy to `1,128cr. EBITDA dipped by 10.3% yoy to

`1,581cr and EBITDA margin contracted by 89bp yoy to 14.9% (higher than our

estimate of 14.0%). EBITDA/tonne grew by 11.3% yoy and 29.6% qoq to `6,035 in

3QFY2012.

Exhibit 5:Quarterly performance(`/tonne of saleable steel) 3QFY12 3QFY11 yoy (%) 2QFY12 qoq (%)Revenue 40,435 34,287 17.9 38,023 6.3Cost 34,915 29,284 19.2 33,868 3.1Raw-material cost 16,873 15,695 7.5 17,326 (2.6)Consumption of stores 2,508 1,787 40.4 2,288 9.6

Power and fuel 4,307 2,731 57.7 3,943 9.2

Staff cost 7,117 5,734 24.1 6,950 2.4

Other expenditure 4,110 3,336 23.2 3,361 22.3

EBITDA 6,035 5,423 11.3 4,657 29.6EBITDA (US$/tonne) 119 121 (1.2) 100 19.6


2.4

3.03.3

3.1

2.8 2.92.6

30,000

32,000

34,000

36,000

38,000

40,000

42,000

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

(`/tonne)

(mntonnes)

Sale s volume (LHS ) Ave rage realisation ( RHS )

0.9

6.6

14.9

(0.1)

19.7

2.2

(4.9)

(10)

(5)

0

5

10

15

20

25

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000


(%)

(`cr)

Net revenue (LHS) yoy chg (RHS)


4/12


February 15, 2012 4

Forex loss hits bottom-lineThe company reported an exceptional item related to forex loss of `466cr in

3QFY2012, compared to exceptional gain of `33cr in 3QFY2011. Hence, PAT

decreased by 42.9% yoy to `632cr. However, excluding exceptional items,

adjusted PAT grew by 2.2% yoy to `1,098cr (in-line with our estimate of `1,083cr)

during 3QFY2012.Exhibit 6:EBITDA margin stood at 14.9%


Exhibit 7:Adj. PAT stood at `1,098 cr


1,843

1,542

1,763

2,211

1,312 1,327

1,581

0.0

5.0

10.0

15.0

20.0

25.0

0

500

1,000

1,500

2,000

2,500


(%)

(`cr)

EBITDA (LHS) EBITDA margin (RHS)

1,177

937

1,074

1,507

839

1,0031,098

(50)

(40)

(30)

(20)

(10)

0

10

20

0

200

400

600

800

1,000

1,200

1,400

1,600


(%)

(`cr)

Adj. PAT (LHS) Adj. PAT margin (RHS)


5/12


February 15, 2012 5

Investment rationale

Volume growth to double, albeit in 3 yearsSAIL is expected to increase its saleable steel production capacity from 12.5mntonnes to 23.1mn tonnes by FY2015 at a capex of `70,000cr. We expect strong

profitability from these plants, with captive iron ore backing the upcoming steel

expansion. Also, we expect SAIL's older loss-making plants to be modernized as

part of its modernization program. However, the company has reported delays in

its expansion projects over the last few quarters. Going forward, we do not rule out

delays and cost over-runs in its expansion plans.

Exhibit 8:Capacity to double by FY2015


Product mix to improve

Post the expansion and modernization of the steel plants, SAIL will benefit from the

improvement in its product mix. Management plans to reduce sale of semis to nil

post the expansion of its steel capacity. Semis constituted 19.7% of the companys

product mix in FY2010 (11.0% of the product mix in FY2011). Contribution from

high-margin structural steel is also expected to improve.

Cost pressures to persist

SAILs 3QFY2012 profitability was hit on account of higher power and fuel costs.

Going forward, we expect these cost pressures to keep its margin growth muted.

Further, we do not expect meaningful rise in steel prices in the near term.

Nevertheless, declining coking coal prices should benefit its margins slightly.

14.5 13.5 12.6

11.711.1

10.5

0

10

20

30

Hot Metal Crude steel Saleable Steel

(mntonne)

Existing Expansion


6/12


February 15, 2012 6

Outlook and valuation

SAIL is expected to increase its saleable steel production capacity from 12.5mn

tonnes to 23.1mn tonnes by FY2015. With captive iron ore backing the upcoming

steel expansion, we expect robust profitability from these plants. Also, we expect

SAIL's older loss-making plants to be modernized as part of its modernization

program. However, the company has reported delays and cost overruns in most of

its expansion plans. The stock is currently trading at an EV/EBITDA of 10.2x

FY2012 and 8.2x FY2013, a significant premium to its peers. Given the modest

volume growth in the near term and fair valuations, we maintain our Neutral viewon the stock.We have lowered our FY2013 sales volumes estimates considering further delays

in SAILs expansion plans. Hence, our FY2013 profitability estimates stand

reduced.

Exhibit 9:Change in estimates(` cr) Earlier estimates Revised estimates Upgrade/(Downgrade) (%)

FY12 FY13 FY12 FY13 FY12 FY13Net sales 46,170 54,932 44,023 50,721 (4.7) (7.7)

EBITDA 6,261 9,414 6,124 8,527 (2.2) (9.4)

EBITDA margin (%) 13.6 17.1 13.9 16.8 35bp (33)bp

PBT 5,686 7,577 5,271 6,837 (7.3) (9.8)

Net income 3,809 5,077 3,953 4,581 3.8 (9.8)

Net margin (%) 8.3 9.2 9.0 9.0 73bp (21)bp


Exhibit 10:EPS Angel forecast vs. ConsensusYear (%) Angel forecast Bloomberg consensus Variation (%)FY2012E 9.6 9.5 0.7

FY2013E 11.1 10.7 3.7

Source: Bloomberg, Angel Research

Exhibit 11:EV/EBITDA


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Apr-05

Dec-0

5

Aug-0

6

Apr-07

Dec-0

7

Aug-0

8

Apr-09

Dec-0

9

Aug-1

0

Apr-11

Dec-1

1

(`cr)

2x 5x 8x 11x 14x


7/12


February 15, 2012 7

Exhibit 12:P/E band


Exhibit 13:P/BV band


Exhibit 14:Recommendation summaryCompany CMP Target Price Reco. Mcap Upside P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) RoCE (%)

(`) (`) (` cr) (%) FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13E FY12E FY13ESAIL 112 - Neutral 46,219 - 11.7 10.1 1.1 1.0 9.3 7.2 10.0 10.6 7.1 8.4Tata Steel 495 558 Accum. 48,089 13 12.1 8.7 1.0 0.9 7.6 5.4 18.8 10.9 7.0 9.4

JSW Steel 870 - Neutral 19,405 - 19.5 12.0 1.2 1.1 6.5 5.5 6.7 10.1 9.0 10.8


0

50

100

150

200

250

300

350

400

Jan-0

5

Aug-0

5

Mar-06

Oct-06

May-0

7

Dec-0

7

Jul-08

Feb-0

9

Sep-0

9

Apr-10

Nov-1

0

Jun-1

1

Jan-1

2

(`)

5x 10x 15x 20x

020,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Apr-05

Dec-0

5

Aug-0

6

Apr-07

Dec-0

7

Aug-0

8

Apr-09

Dec-0

9

Aug-1

0

Apr-11

Dec-1

1

(`cr)

2x 5x 8x 11x 14x


8/12


February 15, 2012 8

Profit & loss statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EGross sales 46,046 49,250 43,935 47,042 48,914 56,356

Less: Excise duty 6,047 5,531 3,383 4,321 4,891 5,636Net sales 39,999 43,719 40,551 42,720 44,023 50,721Other operating income - - 756 663 535 550

Total operating income 39,999 43,719 41,307 43,383 44,558 51,271% chg 16.5 9.3 (5.5) 5.0 2.7 15.1

Total expenditure 28,875 35,185 31,362 35,839 38,434 42,744Net raw materials 13,624 18,149 17,198 18,909 20,039 21,766

Other mfg costs 6,119 6,656 5,938 5,983 6,471 7,456

Personnel 7,919 8,402 5,417 7,627 8,314 9,311

Other 1,212 1,978 2,809 3,319 3,610 4,210

EBITDA 11,124 8,534 9,945 7,544 6,124 8,527% chg 17.9 (23.3) 16.5 (24.1) (18.8) 39.2

(% of net sales) 27.8 19.5 24.5 17.7 13.9 16.8

Depreciation 1,235 1,285 1,337 1,484 1,541 2,282

EBIT 9,889 7,249 8,608 6,060 4,583 6,244% chg 20.3 (26.7) 18.8 (29.6) (24.4) 36.3

(% of net sales) 24.7 16.6 21.2 14.2 10.4 12.3

Interest charges 251 253 402 472 792 1,014

Other income 1,831 2,408 1,926 1,440 1,480 1,607

(% of PBT) 16.0 25.6 19.0 20.5 28.1 23.5

Share in profit of asso. - - - - - -

Recurring PBT 11,469 9,403 10,132 7,027 5,271 6,837% chg 21.7 (18.0) 7.7 (30.6) (25.0) 29.7

Extra. Inc/(Expense) - - - 130 - -

PBT (reported) 11,469 9,403 10,132 7,157 5,271 6,837Tax 3,932 3,229 3,378 2,276 1,318 2,256

(% of PBT) 34.3 34.3 33.3 31.8 25.0 33.0

PAT (reported) 7,537 6,175 6,754 4,881 3,953 4,581 Add: Earnings of asso. - - - - - -

Less: Minority interest - - - - - -

Extra. Expense/(Inc.) - - - - - -

Net income (reported) 7,537 6,175 6,754 4,881 3,953 4,581Adj. net income 7,537 6,175 6,754 4,881 3,953 4,581% chg 21.5 (18.1) 9.4 (27.7) (19.0) 15.9

(% of net sales) 18.8 14.1 16.7 11.4 9.0 9.0

Basic EPS (`) 18.2 14.9 16.4 11.8 9.6 11.1Fully diluted EPS (`) 18.2 14.9 16.4 11.8 9.6 11.1% chg 21.5 (18.1) 9.4 (27.7) (19.0) 15.9


9/12


February 15, 2012 9

Balance sheet (Consolidated)

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013ESOURCES OF FUNDSEquity share capital 4,130 4,130 4,130 4,130 4,130 4,130Reserves & surplus 18,933 23,854 29,186 33,474 36,944 41,042

Shareholders funds 23,064 27,984 33,317 37,604 41,074 45,173Share application money - - - 12 12 12

Share warrants - - - - - -

Minority interest - - - 1 1 1

Total loans 3,045 7,539 16,511 21,260 26,260 33,260Deferred tax liability 1,569 1,332 1,415 1,557 1,557 1,557

Total liabilities 27,677 36,855 51,243 60,434 68,905 80,003APPLICATION OF FUNDSGross block 30,923 32,729 35,396 40,466 62,266 77,766

Less: Acc. depreciation 19,351 20,460 21,781 23,833 25,373 27,656

Net Block 11,571 12,269 13,615 16,633 36,892 50,110Capital work-in-progress 2,390 6,544 15,026 22,581 20,081 18,581

Goodwill - - - - - -

Investments 538 653 669 61 61 61

Current assets 26,318 34,511 39,081 38,833 31,324 31,261Cash 13,759 18,229 22,439 17,748 10,174 9,072

Loans & advances 2,380 2,122 3,343 4,904 4,904 4,904

Other 10,178 14,160 13,299 16,181 16,245 17,285

Current liabilities 13,199 17,122 17,149 17,676 19,454 20,012Net current assets 13,119 17,389 21,933 21,159 11,870 11,251Mis. exp. not w/off 59 - - - - -

Total assets 27,677 36,855 51,243 60,434 68,905 80,003


10/12


February 15, 2012 10

Cash flow statement

Y/E March (` cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EProfit before tax 11,469 9,403 10,132 7,390 5,271 6,837

Depreciation 1,234 1,287 1,334 1,607 1,541 2,282Change in working capital (743) (2,418) 1,492 (3,265) 1,715 (483)

Less: Other income 201 990 (4,499) (930) - -

Direct taxes paid 3,783 3,139 3,659 2,303 1,318 2,256

Cash flow from operations 8,378 6,124 4,800 2,496 7,209 6,381(Inc.)/ Dec. in net fixed assets (2,199) (5,403) (10,125) (10,851) (19,300) (14,000)

(Inc.)/ Dec. in investments (20) (105) (10) (8) - -

(Inc.)/ Dec. in loans and adv. - - - - - -

Other income (1,079) (1,101) (2,114) (1,697) - -

Cash flow from investing (1,140) (4,406) (8,021) (9,162) (19,300) (14,000)Issue of equity 1 1 5 20 - -

Inc./(Dec.) in loans (1,112) 4,520 8,887 3,609 5,000 7,000

Dividend paid 1,643 1,496 1,400 1,400 483 483

Others 334 273 96.5 536 - -

Cash flow from financing (3,089) 2,751 7,395 1,693 4,517 6,517Inc./(Dec.) in cash 4,150 4,469 4,174 (4,973) (7,574) (1,102)

Opening cash bal. 9,610 13,759 18,265 22,721 17,748 10,174Closing cash bal. 13,759 18,229 22,439 17,748 10,174 9,072


11/12


12/12


February 15 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement SAIL

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

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steel authority of india result updated

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