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EVENT UPDATE
SAIL — Sharper-than-expected realization drop
SAIL — Sharper-than-expected realization drop
Headline financial numbers below expectation
Topline was Rs108,062mn, 9% below our expectation while EBITDA (incl. other operating income) was Rs16,948mn, representing a 16% margin and significantly below our estimate of Rs24,005mn. Reported net profit came in at Rs10,900mn, a drop of 34% YoY drop and 7% QoQ.
Sales volume rebound but at the expense of realizations
Sales volume was 3.03mt (lower than the initially announced 3.17mt), a 31% growth sequentially. Of the 0.5mt inventory build-up that took place in 1Q, only a small part (~0.1mt has been liquidated so far. Net sales per tonne sold declined 10% QoQ. SAIL’s steel prices were higher than peers’ in 1Q, and so it had to cut prices by a larger amount in 2Q compared with peers, in order to bring about the volume recovery.
Profitability takes a sharp dip
The QoQ increase in RM cost/t (8% on a crude steel production basis and just 2% on saleable steel production basis) was lower than expected as the amount of high-cost coking coal used decreased sequentially. EBITDA was Rs5,593/t in 2QFY11, lower compared with Rs7,943/t in 1QFY11.
Delay in ISP commissioning, so meaningful volume growth only in FY13E
While 2Q capex was a healthy Rs25bn, ISP commissioning date has been set back by another three months to December 2011, so expansion-led volume growth will take place only in FY13E. Until then, the blast furnace II upgradation at Bokaro has to be relied upon for volume growth.
View and recommendation: Maintain HOLD with TP of Rs225
We believe that there is possibility of further delay in execution of capacity expansion. The strong balance sheet gives SAIL relative strength in a volatile steel market, and we maintain our HOLD rating and TP.
Topline was Rs108,062mn, 9% below our expectation while EBITDA (incl. other operating income) was Rs16,948mn, representing a 16% margin and significantly below our estimate of Rs24,005mn. Reported net profit came in at Rs10,900mn, a drop of 34% YoY drop and 7% QoQ.
Sales volume was 3.03mt (lower than the initially announced 3.17mt), a 31% growth sequentially. Of the 0.5mt inventory build-up that took place in 1Q, only a small part (~0.1mt has been liquidated so far. Net sales per tonne sold declined 10% QoQ. SAIL’s steel prices were higher than peers’ in 1Q, and so it had to cut prices by a larger amount in 2Q compared with peers, in order to bring about the volume recovery.
Profitability takes a sharp dip
The QoQ increase in RM cost/t (8% on a crude steel production basis and just 2% on saleable steel production basis) was lower than expected as the amount of high-cost coking coal used decreased sequentially. EBITDA was Rs5,593/t in 2QFY11, lower compared with Rs7,943/t in 1QFY11.
Delay in ISP commissioning, so meaningful volume growth only in FY13E
While 2Q capex was a healthy Rs25bn, ISP commissioning date has been set back by another three months to December 2011, so expansion-led volume growth will take place only in FY13E. Until then, the blast furnace II upgradation at Bokaro has to be relied upon for volume growth.
View and recommendation: Maintain HOLD with TP of Rs225
We believe that there is possibility of further delay in execution of capacity expansion. The strong balance sheet gives SAIL relative strength in a volatile steel market, and we maintain our HOLD rating and TP.
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