In line operational performance… • SAIL :: ICICI Securities, link

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In line operational performance…
• SAIL reported a good set of Q2FY15 numbers wherein the total
operating income and EBITDA were in line with our estimate
whereas PAT was higher than our estimates on account of lower
than expected depreciation charge
• Total operating income for Q2FY15 came in at | 11678.7 crore, up
3% QoQ & 1.4% YoY and in line with our estimate of | 11689.3 crore
• The EBITDA came in at | 1336.4 crore, up 18.5% QoQ and 77.5%
YoY and above our estimate of | 1301.2 crore. The EBITDA margin
came in at 11.4% (our estimate: 11.1%)
• The consequent PAT came in at | 649.5 crore, up 22.6% QoQ. It was
higher than our estimate of | 526.2 crore
• Total sales volume came in at 2.9 MT, in line with our estimate of 2.9
MT. The EBITDA/tonne came in at | 4553/tonne, also in line with our
estimate of | 4500/tonne
Sales volume to grow at CAGR of 9.5% during FY14-16E
The steel sector is facing headwinds in the form of a muted demand
scenario both domestically as well as globally. Indian domestic steel
demand has been stagnant with mere 0.6% consumption growth in FY14.
In the current challenging times, SAIL has been able to report sales
volume growth of 9.0% in FY14 indicating an increase in its domestic
market share (12.1 MT in FY14 vis-à-vis 11.1 MT in FY13). For H1FY15,
sales volume stood at 5.7 MT, up 2% YoY. Going forward, we expect
steel sales at SAIL to grow at a CAGR of 9.5% in FY14-16E. The
incremental volume is likely to come from the ISP Blast furnace, which is
likely to be commissioned in Q3FY15, as also ramp up of Rourkela Blast
Furnace.
EBITDA/tonne to improve with increasing sales & better product mix
Despite the company having access to captive iron ore, the company’s
operating performance has been subdued due to high employee costs.
High employee costs coupled with declining steel sales reduced the
EBITDA/tonne of the company from | 6560/tonne in FY11 to | 3407/tonne
in FY14. However, going forward, on the back of increasing steel sales,
commissioning of new facilities including coke oven batteries and better
product mix, we expect the EBITDA/tonne to improve to | 5250/tonne in
FY15E and | 6250/tonne in FY16E. The company will also be a key
beneficiary of the current decline in global coking coal prices (key raw
material for steel manufacturing).
In line operational performance; maintain HOLD
The company reported an in line operational performance. Going forward
we expect SAIL’s operating performance to improve on account of
receding regulatory hurdles with regard to iron ore mining. We have
upward revised our EBITDA/tonne estimate to | 6250/tonne for FY16E
(from | 6000/tonne earlier). We have valued the stock at 6x FY16E
EV/EBITDA and given a 15% discount to the company’s CWIP to arrive at
a target price of | 90. We maintain our HOLD rating on the stock.

LINK
http://content.icicidirect.com/mailimages/IDirect_SAIL_Q2FY15.pdf