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Steel Authority Of India
F2Q11 Results: Below
Expectations; Stay OW
Quick Comment – Impact on our views: We maintain
our constructive stance on SAIL since: 1) we expect a
stronger F2H11 in terms of volumes and prices; and 2)
SAIL’s expansion plans should get increasing
recognition from investors over the next three to four
quarters as we come closer to commissioning of the new
plants.
What's new: SAIL reported F2Q11 PAT of Rs10.9bn,
up 68% YoY and down 7% QoQ. EBITDA at Rs16.9bn
was 17% below estimates, largely due to lower-thanexpected
sales volume.
What we did not like:
Sales volume of 3.03mt, although up 32% QoQ, was 4%
lower than our estimate of 3.17mt. We believe SAIL will
liquidate is inventory in F2H11 with the strong demand
pick-up post monsoons.
EBITDA/ton stood at Rs5,593, down 6% YoY and 37%
QoQ, largely due to 9% sequentially lower realizations.
What we liked:
Raw material cost per ton increased by just 6% QoQ
despite higher coking coal cost this quarter.
Other expenditure per ton at Rs2,451 decreased 25%
QoQ and is now back to a eight-year average level of
~Rs2,250.
Fixed assets increased by 14% from March 2010 to
September 2010, which implies that the expansion plans
are on track. SAIL should start commissioning its 2mt
expansion project at its IISCO site by F2H12.
Cash balance stood at Rs145bn as of September 30,
2010, 15% of the market cap.
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