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SAIL 2QFY11: Below estimate; Realization down 15% QoQ but in-line; EBITDA/ton down to US$120; Capex sluggish; Neutral
- SAIL’s (SAIL IN, Mkt Cap US$18.7b, CMP205, Neutral) 2QFY11 PAT declined 7% QoQ (34% YoY) to Rs10.9b (below our revised est of Rs12.5b) due to sharp correction in steel prices sequentially despite 38% higher volumes.
- Saleable steel sales volume increased 38% QoQ to 3.17m tons (+5% YoY) due to improved demand and reduction of imports.
- Average saleable steel realization declined sharply by Rs5,961/ton QoQ to Rs34,577/ton in-line with our estimate (though much below street expectation).
- Net Sales increased 18% QoQ to Rs109.6b (+ 9% YoY).
- EBITDA declined 8% QoQ to Rs17b (vs est of Rs19b) due to higher than expected costs.
- EBITDA per ton declined 33% QoQ to Rs5,346 (US$120/ton).
- Employee costs increased 51% YoY to Rs17b due to additional provision of Rs700m towards employee related benefits in 2QFY11.
- During 1HFY11, total loans have declined by Rs31b to Rs134b. At the same time cash & equivalents too have declined by 79b to Rs145b.
- Capex during the 6 months was Rs34b and increase in inventories was Rs32b. 1HFY11 capex is much below FY11 target of Rs120b.
- Stock is trading at expensive valuations - FY12E PE of 14x and EV/EBITDA of 9.5x. Maintain Neutral.
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