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EARNINGS REVIEW
Steel Authority of India (SAIL.BO)
Neutral Equity Research
Above expectations: Strong operating performance, MTM Fx losses
What surprised us
SAIL reported 3QFY12 net income of Rs6.3bn that included Rs4.6bn in MTM
forex losses. Adjusting for this, net income came in at Rs10.9bn (-1% yoy, +122%
qoq), 32% ahead of GS and 42% ahead of Bloomberg consensus estimates. At
the operating level, EBITDA came in at Rs15.8bn (-12% yoy, +19% qoq), 17%
ahead of our estimates mainly on better than expected cost controls. Sales
volumes came in at 2.62mn tons (-19% yoy vs. GSe 2.9mn ton). This is the worst
volume growth reported in our coverage universe – indicating that SAIL has lost
market share to its peers in 3Q. Despite lower volumes, revenue came in 4%
below our estimates on better average realizations, which increased 6% qoq on
better product mix and higher pricing in Dec. The company was able to exercise
strong cost controls as the damaged coke oven battery at Bokaro was restored
in 3Q. Input costs were up only 7% qoq, staff costs down 6%, while stores and
spares and energy remained flat on a qoq basis. The company in its press
release stated that ongoing projects are on course for phased commissioning in
2012, and it expects industry demand to improve in 4QFY12. It expects steel
prices to stabilize in 2HFY12. Total borrowing stood at Rs199bn (with Fx loans of
Rs83bn) and cash stood at Rs86bn. The Board has approved an interim dividend
of Rs1.2 per share (12% per face value).
What to do with the stock
We revise our FY12E-14E EPS by +16%/-0.2%/-14% as we lower our cost
assumptions in FY12, keeping FY13 flat, while lowering our volumes and
increasing our cost assumptions for FY14. We keep our Neutral rating and raise
our 12-m P/B-based TP to Rs116 (from Rs115) on slightly higher FY13 BVPS. Our
TP implies 5% upside from current levels. The stock is trading at 1.1X FY13E P/B with
11.6% ROE and 7.4X EV/EBITDA. Key risks: Delays in project execution, lower costs
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Steel Authority of India (SAIL.BO)
Neutral Equity Research
Above expectations: Strong operating performance, MTM Fx losses
What surprised us
SAIL reported 3QFY12 net income of Rs6.3bn that included Rs4.6bn in MTM
forex losses. Adjusting for this, net income came in at Rs10.9bn (-1% yoy, +122%
qoq), 32% ahead of GS and 42% ahead of Bloomberg consensus estimates. At
the operating level, EBITDA came in at Rs15.8bn (-12% yoy, +19% qoq), 17%
ahead of our estimates mainly on better than expected cost controls. Sales
volumes came in at 2.62mn tons (-19% yoy vs. GSe 2.9mn ton). This is the worst
volume growth reported in our coverage universe – indicating that SAIL has lost
market share to its peers in 3Q. Despite lower volumes, revenue came in 4%
below our estimates on better average realizations, which increased 6% qoq on
better product mix and higher pricing in Dec. The company was able to exercise
strong cost controls as the damaged coke oven battery at Bokaro was restored
in 3Q. Input costs were up only 7% qoq, staff costs down 6%, while stores and
spares and energy remained flat on a qoq basis. The company in its press
release stated that ongoing projects are on course for phased commissioning in
2012, and it expects industry demand to improve in 4QFY12. It expects steel
prices to stabilize in 2HFY12. Total borrowing stood at Rs199bn (with Fx loans of
Rs83bn) and cash stood at Rs86bn. The Board has approved an interim dividend
of Rs1.2 per share (12% per face value).
What to do with the stock
We revise our FY12E-14E EPS by +16%/-0.2%/-14% as we lower our cost
assumptions in FY12, keeping FY13 flat, while lowering our volumes and
increasing our cost assumptions for FY14. We keep our Neutral rating and raise
our 12-m P/B-based TP to Rs116 (from Rs115) on slightly higher FY13 BVPS. Our
TP implies 5% upside from current levels. The stock is trading at 1.1X FY13E P/B with
11.6% ROE and 7.4X EV/EBITDA. Key risks: Delays in project execution, lower costs
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