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Steel Authority of India — 1QFY12: margins
squeezed on higher costs
Country Overview
1Q disappoints on lower vol. & higher cost, Underperform
1Q PAT declined 42%QoQ to Rs8.4bn, ~24% below consensus & our estimates.
Realizations increased 3%QoQ but EBITDA declined on lower voumes & higher
costs. While input cost hike was expected, wage cost and power/ fuel costs
surprised negatively. We have cut our FY12-14e EPS by 3-4% & PO to Rs124
due to higher costs. We remain cautious due to margin concerns, structural
decline in profitability due to wage hikes, muted vol. growth & rich valuations.
EBITDA down 42%QoQ; margins squeeze on higher costs
EBITDA/t declined US$53/tQoQ to US$106/t. Volumes declined 12%QoQ to
2.75mt due to sluggish demand. Inventories were stable QoQ at 1.1mt despite
lower dispatches due to internal consumption. ASP increased 3%QoQ. Input
cost/t was up 3%QoQ, broadly in line. SAIL used ~0.3mt of carry over coal priced
at US$220/t. Wage cost increased 10%QoQ led by Rs2.3bn of LTA related costs.
Power cost/t jumped 23%QoQ led by higher power tariff & higher coal prices.
Mgmt guides to flat production growth in FY12.
Downstream units at ISP are expected to be commissioned in FY12, but 2mtpa
integrated steel plant will be completed in March12. SAIL plans to transfer semis
from Durgapur steel plant to ISP in the interim period. 2mt Rourkela blast furnace
is proposed to be started in Mar12 but integrated steel plant will be completed
only by 4QFY13. We expect steel vols. to grow at 10.8% CAGR over FY12-13e.
Margins to remain under pressure next few quarters
Steel demand is sluggish & demand has slowed esp. in July as per Mgmt. SAIL
expects some uptick in demand seasonally in Dec Q. We expect input cost
pressure to increase as full impact of higher coking coal costs come thru in 2Q
onwards. Also SAIL may provide for wage hikes for non exec (60% of wage cost,
due Jan12) in 4QFY12. SAIL expects wage cost of ~Rs80bn (6%YoY) in FY12e.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Steel Authority of India — 1QFY12: margins
squeezed on higher costs
Country Overview
1Q disappoints on lower vol. & higher cost, Underperform
1Q PAT declined 42%QoQ to Rs8.4bn, ~24% below consensus & our estimates.
Realizations increased 3%QoQ but EBITDA declined on lower voumes & higher
costs. While input cost hike was expected, wage cost and power/ fuel costs
surprised negatively. We have cut our FY12-14e EPS by 3-4% & PO to Rs124
due to higher costs. We remain cautious due to margin concerns, structural
decline in profitability due to wage hikes, muted vol. growth & rich valuations.
EBITDA down 42%QoQ; margins squeeze on higher costs
EBITDA/t declined US$53/tQoQ to US$106/t. Volumes declined 12%QoQ to
2.75mt due to sluggish demand. Inventories were stable QoQ at 1.1mt despite
lower dispatches due to internal consumption. ASP increased 3%QoQ. Input
cost/t was up 3%QoQ, broadly in line. SAIL used ~0.3mt of carry over coal priced
at US$220/t. Wage cost increased 10%QoQ led by Rs2.3bn of LTA related costs.
Power cost/t jumped 23%QoQ led by higher power tariff & higher coal prices.
Mgmt guides to flat production growth in FY12.
Downstream units at ISP are expected to be commissioned in FY12, but 2mtpa
integrated steel plant will be completed in March12. SAIL plans to transfer semis
from Durgapur steel plant to ISP in the interim period. 2mt Rourkela blast furnace
is proposed to be started in Mar12 but integrated steel plant will be completed
only by 4QFY13. We expect steel vols. to grow at 10.8% CAGR over FY12-13e.
Margins to remain under pressure next few quarters
Steel demand is sluggish & demand has slowed esp. in July as per Mgmt. SAIL
expects some uptick in demand seasonally in Dec Q. We expect input cost
pressure to increase as full impact of higher coking coal costs come thru in 2Q
onwards. Also SAIL may provide for wage hikes for non exec (60% of wage cost,
due Jan12) in 4QFY12. SAIL expects wage cost of ~Rs80bn (6%YoY) in FY12e.
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