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Steel Authority of India
4QFY11: Cost pressures continue
SAIL reported 4QFY11 results today. Production volumes of saleable steel were
at 3.43mt increasing 4% sequentially. EBITDA at Rs21.2bn (+30% qoq and -25%
yoy), below our expectation was impacted by higher employee costs which
increased 10% sequentially.
4QFY11 results: Cost pressures continue
! 4Q net revenues were at Rs119.4bn (+7% qoq and flat yoy) driven by production volumes of
3.43mt (+4% qoq and 1% yoy). Cost pressure continued with raw material costs at Rs52.1bn
(+2% qoq and +5% yoy), stores expenses at Rs6.3bn (+9% qoq and +1% yoy) and notably,
staff costs at Rs20.5bn (+10% qoq and +25% yoy). Driven by higher costs, EBITDA came in
at Rs21.2bn (+30% qoq and -25% yoy), lower than our expectation of Rs23.7bn. Other
income increased to Rs4.1bn (+50% qoq and -8% yoy). Interest expense also surged to
Rs1.7bn from 0.6bn in 3QFY11 with higher borrowings. This drove PAT to Rs15.1bn (+36%
qoq and -28% yoy).
FY11 results highlights
! FY11 net revenues were at Rs427.2bn (+4% yoy). Production volumes of saleable steel were
at 12.89mt (+2% yoy) with capacity utilization at 116%. Production of value-added steel
improved to 4.8mt (+3% yoy). EBITDA was at Rs69.7bn (-23% yoy) due to higher costs,
especially coking coal. The impact of rising imported coking coal costs alone was Rs31bn.
Net profit was Rs48.8bn (-27% yoy).
Update on expansion plans
! Capital expenditure was Rs112.8 bn ( +6%yoy) for FY11. Management has noted that at
IISCO Steel Plant in Burnpur, some of the major new facilities like sinter plant, pig casting
machine, main receiving station and oxygen plant are ready for commissioning.
Update on raw material projects
! The company has already initiated actions for development of state-of-the-art mechanised
mines in Chiria, initially with a capacity of 7mt. The estimated cost for development of the
Chiria mines is about Rs50bn. SAIL has also obtained clearance from the MoEF for
enhancing the mining capacity of integrated Barsua-Taldih-Kalta iron ore mines from the
present level of 3.8 mt to 8.1mt (along with beneficiation and pelletisation facilities) in October
2010 and for development of Sitanala coking coal block in December 2010. Efforts are on to
develop 0.3mt underground mine at Sitanala.
Employee attrition driving productivity
! Net employee strength decreased by 6000 during FY11 taking total manpower to ~1,11,000.
Productivity thus increased to 241 tonnes per man year versus 226 tonnes in FY10.
Liquidity scenario
! The company’s total borrowings stood at Rs201.6bn at end of FY11, taking its debt-equity
ratio to 0.54:1. The company’s cash reserves in term deposits stood at over Rs170.bn.
Next two quarters should see margin squeeze
! We believe the next two quarters could be particularly challenging for SAIL as margins get
squeezed by subdued volumes (being seasonally weaker quarters) as well as higher coking
coal prices which flow through (peak coking coal prices due to queensland floods). We have a
Hold rating on SAIL with target price of Rs142.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Steel Authority of India
4QFY11: Cost pressures continue
SAIL reported 4QFY11 results today. Production volumes of saleable steel were
at 3.43mt increasing 4% sequentially. EBITDA at Rs21.2bn (+30% qoq and -25%
yoy), below our expectation was impacted by higher employee costs which
increased 10% sequentially.
4QFY11 results: Cost pressures continue
! 4Q net revenues were at Rs119.4bn (+7% qoq and flat yoy) driven by production volumes of
3.43mt (+4% qoq and 1% yoy). Cost pressure continued with raw material costs at Rs52.1bn
(+2% qoq and +5% yoy), stores expenses at Rs6.3bn (+9% qoq and +1% yoy) and notably,
staff costs at Rs20.5bn (+10% qoq and +25% yoy). Driven by higher costs, EBITDA came in
at Rs21.2bn (+30% qoq and -25% yoy), lower than our expectation of Rs23.7bn. Other
income increased to Rs4.1bn (+50% qoq and -8% yoy). Interest expense also surged to
Rs1.7bn from 0.6bn in 3QFY11 with higher borrowings. This drove PAT to Rs15.1bn (+36%
qoq and -28% yoy).
FY11 results highlights
! FY11 net revenues were at Rs427.2bn (+4% yoy). Production volumes of saleable steel were
at 12.89mt (+2% yoy) with capacity utilization at 116%. Production of value-added steel
improved to 4.8mt (+3% yoy). EBITDA was at Rs69.7bn (-23% yoy) due to higher costs,
especially coking coal. The impact of rising imported coking coal costs alone was Rs31bn.
Net profit was Rs48.8bn (-27% yoy).
Update on expansion plans
! Capital expenditure was Rs112.8 bn ( +6%yoy) for FY11. Management has noted that at
IISCO Steel Plant in Burnpur, some of the major new facilities like sinter plant, pig casting
machine, main receiving station and oxygen plant are ready for commissioning.
Update on raw material projects
! The company has already initiated actions for development of state-of-the-art mechanised
mines in Chiria, initially with a capacity of 7mt. The estimated cost for development of the
Chiria mines is about Rs50bn. SAIL has also obtained clearance from the MoEF for
enhancing the mining capacity of integrated Barsua-Taldih-Kalta iron ore mines from the
present level of 3.8 mt to 8.1mt (along with beneficiation and pelletisation facilities) in October
2010 and for development of Sitanala coking coal block in December 2010. Efforts are on to
develop 0.3mt underground mine at Sitanala.
Employee attrition driving productivity
! Net employee strength decreased by 6000 during FY11 taking total manpower to ~1,11,000.
Productivity thus increased to 241 tonnes per man year versus 226 tonnes in FY10.
Liquidity scenario
! The company’s total borrowings stood at Rs201.6bn at end of FY11, taking its debt-equity
ratio to 0.54:1. The company’s cash reserves in term deposits stood at over Rs170.bn.
Next two quarters should see margin squeeze
! We believe the next two quarters could be particularly challenging for SAIL as margins get
squeezed by subdued volumes (being seasonally weaker quarters) as well as higher coking
coal prices which flow through (peak coking coal prices due to queensland floods). We have a
Hold rating on SAIL with target price of Rs142.
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