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Weak 4Q results
SAIL’s 4Q net profit was down 28% YoY and 3% below estimates due to
lower volumes, and higher coking coal and staff costs. SAIL saw some
weakness in domestic demand in 4Q, mainly in flats, which has also led to a
slight price correction since mid-Mar. SAIL’s margins will be under pressure in
1Q12 due to higher coking coal costs and seasonally low volumes. SAIL will
have a wage revision for workers in Jan-12, which will push up staff costs in
FY13. The ISP plant expansion is on track for commissioning by Dec-11 but
incremental volumes will show only in FY13. The other plant expansions are
on track for commissioning by Mar-13 but we anticipate delays. Retain U-PF.
Weak 4Q results
4Q EBITDA missed our estimates by 3% due to lower volumes and higher costs.
Volumes were lower than expected at 3.1mt, down 6.8% YoY. SAIL saw some
weakness in domestic demand in 4Q, mainly in flats. This was surprising given
strong demand from auto sector; we reckon that demand from other end-users of
flats – pipes, capital goods etc – might have weakened. ASPs were strong as
expected – up 11% QoQ; but prices have weakened a bit since mid-Mar. RM cost/t
was up 6% QoQ due to higher coking coal prices; staff cost also rose 10% QoQ.
EBITDA/t improved to $165/t, up 36% QoQ, but not to the extent we anticipated.
Margins to decline in 1Q12 due to coal costs and seasonally low volumes
Margins will decline QoQ in 1Q12 due to higher coking coal prices and seasonally
low volumes. RM cost/ton will go up further in 1Q12 as SAIL will see the impact of
US$330/t coking coal contracts flowing through. Volumes are typically lower in the
first quarter of the year, which will also put pressure on margins.
Wage hike for non-executive workers in Jan-12
SAIL will implement a wage revision for workers in Jan-12. Workers’ wages are
about 2/3rd of the total wage bill. The workers’ salaries were last revised in Jan-
07, when the basic component (~50% of total) went up by ~21%. The hike in
Jan-12 might be of a slightly lower magnitude as it is happening after a gap of 5
years while the Jan-07 hike was after a gap of 10 years. Nonetheless, this could
result in higher-than-expected staff costs and lower margins in FY13.
Projects are on track, but we anticipate some delays; maintain U-PF
The 2mtpa ISP plant expansion will get commissioned by Dec-11 but volumes will
start flowing through only in FY13. SAIL maintains that the other plant expansions
are on track for commissioning by Mar-13 but we anticipate some delays. We are
not inclined to look at valuations after excluding the debt component of CWIP
from net debt as we believe that the market does not and will not make this
adjustment most of the times, especially if there exists risk of project delays. If
the projects are delayed, then SAIL becomes an FY15-16 story – too far off to
factor in. Although SAIL’s stock has underperformed the Sensex in CY10 as well as
in YTD-11; valuations at 6.3x FY13 EV/EBITDA are still not cheap. Maintain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Weak 4Q results
SAIL’s 4Q net profit was down 28% YoY and 3% below estimates due to
lower volumes, and higher coking coal and staff costs. SAIL saw some
weakness in domestic demand in 4Q, mainly in flats, which has also led to a
slight price correction since mid-Mar. SAIL’s margins will be under pressure in
1Q12 due to higher coking coal costs and seasonally low volumes. SAIL will
have a wage revision for workers in Jan-12, which will push up staff costs in
FY13. The ISP plant expansion is on track for commissioning by Dec-11 but
incremental volumes will show only in FY13. The other plant expansions are
on track for commissioning by Mar-13 but we anticipate delays. Retain U-PF.
Weak 4Q results
4Q EBITDA missed our estimates by 3% due to lower volumes and higher costs.
Volumes were lower than expected at 3.1mt, down 6.8% YoY. SAIL saw some
weakness in domestic demand in 4Q, mainly in flats. This was surprising given
strong demand from auto sector; we reckon that demand from other end-users of
flats – pipes, capital goods etc – might have weakened. ASPs were strong as
expected – up 11% QoQ; but prices have weakened a bit since mid-Mar. RM cost/t
was up 6% QoQ due to higher coking coal prices; staff cost also rose 10% QoQ.
EBITDA/t improved to $165/t, up 36% QoQ, but not to the extent we anticipated.
Margins to decline in 1Q12 due to coal costs and seasonally low volumes
Margins will decline QoQ in 1Q12 due to higher coking coal prices and seasonally
low volumes. RM cost/ton will go up further in 1Q12 as SAIL will see the impact of
US$330/t coking coal contracts flowing through. Volumes are typically lower in the
first quarter of the year, which will also put pressure on margins.
Wage hike for non-executive workers in Jan-12
SAIL will implement a wage revision for workers in Jan-12. Workers’ wages are
about 2/3rd of the total wage bill. The workers’ salaries were last revised in Jan-
07, when the basic component (~50% of total) went up by ~21%. The hike in
Jan-12 might be of a slightly lower magnitude as it is happening after a gap of 5
years while the Jan-07 hike was after a gap of 10 years. Nonetheless, this could
result in higher-than-expected staff costs and lower margins in FY13.
Projects are on track, but we anticipate some delays; maintain U-PF
The 2mtpa ISP plant expansion will get commissioned by Dec-11 but volumes will
start flowing through only in FY13. SAIL maintains that the other plant expansions
are on track for commissioning by Mar-13 but we anticipate some delays. We are
not inclined to look at valuations after excluding the debt component of CWIP
from net debt as we believe that the market does not and will not make this
adjustment most of the times, especially if there exists risk of project delays. If
the projects are delayed, then SAIL becomes an FY15-16 story – too far off to
factor in. Although SAIL’s stock has underperformed the Sensex in CY10 as well as
in YTD-11; valuations at 6.3x FY13 EV/EBITDA are still not cheap. Maintain U-PF.
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