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Steel Authority of India Weakness extends; priced in the stock price
SAIL reported Q3FY11 results below our expectation, with the underlying lower‐thanexpected
realisations. We remained well ahead of the street in revising the earnings of
the company which reflect in one of the lowest earnings cut for FY11 in the street.
Weaker‐than‐expected realisations led to disappointment in earnings: Marred
by lower‐than‐expected realisations (Rs34,287 v/s PLe of Rs35,693 per tonne),
SAIL reported disappointing set of numbers, with PAT of Rs11.07bn against PLe of
Rs12.77bn and consensus estimate of Rs14.1bn. EBITDA at Rs16.26bn fell short of
PLe of Rs18.87bn and consensus estimate of Rs21.8bn. On tonnage basis, EBITDA
grew marginally by 1.6% QoQ to Rs5,003 (PLe: Rs6088). Only positive came in the
form of better‐than‐expected volumes at 3.25m tonnes against PLe of 3.03m
tonnes.
Key highlights of the post result con‐call: Company spent Rs27bn and Rs80bn on
capital expenditure during the quarter and 9MFY11, respectively. Given the
weaker earnings, company’s balance sheet reversed from net cash of Rs6.1bn in
Q2FY11 to net debt of Rs6.8bn in the current quarter.
Earnings revised downwards by 4‐5%, maintained for FY12: We cut our EPS
estimate for FY11 by 4.5% to Rs12.1 for FY11 to provide for lower–than‐expected
realisations and lower other income. We maintain our estimates for FY12.
Outlook and Valuation: Stock came off sharply by ~27% during the last three
months on account of poor operational performance and consistent delays in
execution of capacity augmentation plans. Notwithstanding that, we expect
negatives are very much priced in; visible in P/BV of 1.7x and 1.5x FY12E and
FY13E, respectively. We lowered our price target on the stock to Rs200 (earlier
Rs220), based on P/BV of 1.7x FY13E BV.
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