Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lower volumes and blended realisations dent EBITDA
Steel Authority of India (SAIL) reported net sales of ~INR 119 bn in Q4FY11, up
~7% Q-o-Q (flat Y-o-Y) and ~9% below our estimate. This variation was
primarily due to lower-than-expected volumes and blended realizations which
came in at ~3.14 mt (our expectation: 3.4 mt) and ~INR 38k/t (our
expectation: 38.4k/t), respectively. We had estimated a realization increase of
~INR 4k/t, whereas it increased by INR 3.7k/t. Moreover, per tonne expenditure
on all cost fronts was higher than estimated by ~INR 1k/t, resulting in EBITDA/t
of ~INR 6.7k/t, ~17% below estimate. Consequently, EBITDA, at ~INR 21.2 bn
(up 30% Q-o-Q, down 25% Y-o-Y), was ~24% below estimate. Net profit, at INR
15.1 bn, tracked EBITDA and was 19% lower than estimate.
Debt catapults as capex soars
The company incurred a capex of INR 32.8 bn in Q4FY11, up 5% Y-o-Y, against
INR 29 bn in Q3FY11 on its expansion-cum-modernisation projects. While debt
has jumped significantly from INR 142 bn at Q3FY11 end to INR 201.6 bn at
Q4FY11 end, cash on balance sheet increased correspondingly from INR 135 bn
to INR 170 bn. Thus, net debt has sharply catapulted from INR 7 bn to INR 31.6
bn sequentially in Q4FY11. Capex for FY11 was INR 113 bn, up 6% Y-o-Y.
Expansion projects on revised schedules; Salem plant yet to stabilise
We understand that the expansion projects at all locations are tracking revised
schedules, the earliest of which—IISCO (2 mtpa) and Bokaro (net 0.2 mtpa)—
are to be completed by December 2011. The 175 ktpa Salem plant expansion
was completed in September 2010, but is yet to fully stabilise.
Outlook and valuations: Subdued quarter; maintain ‘HOLD’
Volumes continue to disappoint with FY11 volume at 11.7 mt, ~2.5% below our
estimate, with ~1.1 mt of steel inventory. Moreover, cost pressure from coking
coal will persist as ~1.6-1.7 mt of high cost carry forward coking coal inventory
at USD 300/t is to be utilized, which to some extent will be negated by the 1 mt
spillover coking coal at USD 210-225/t from Q3FY11 and Q4FY11. We continue
to maintain ‘HOLD/ Sector Underperformer’ recommendation/ rating on the
stock.
Key highlights of conference call
• Saleable steel production and sales volume for FY11 was ~12.9 mt and ~11.7 mt
respectively.
• The current wage cost is the normalized reflection of wages and expected to remain
stable, except for increments and increases in actuarial valuation as well as to
account for DA. Wage revision for non executives is scheduled for March 2012. Non
executives form ~60% of the total employee force.
• Royalty has increased from INR 96/t in FY10 to INR 222/t in FY11.
• The capex for FY11 was INR 113 bn against the budgeted INR 123 bn. The lowerthan-
expected spending was on account of delay in tendering of orders at the Bhilai
Steel Plant expansion. FY12 capex is expected to be INR 140 bn.
• BCCL has increased domestic coking coal prices by ~17%, whereas CCL and WCL
have increased coking coal prices by ~8-10%.
• The Bokaro Steel Plant with the new 1.2 mtpa CRM is on schedule to be completed by
December 2011. All the other expansions at Rourkela (2.3 mtpa), Bhilai (~3.4 mtpa),
and Durgapur (0.5 mtpa) will be completed between December 2012 and March
2013.
• The high cost carry forward coking coal inventory at USD 300/t currently stands at
~1.6-1.7 mt and is expected to be utilized in FY12. The company utilized ~0.6 mt of
USD 300/t coking coal in Q4FY11, much higher than our expectation of 0.22 mt. SAIL
will also have ~1 mt of spillover coking coal at USD 210-225/t from Q3FY11 and
Q4FY11.
• Average landed domestic coking coal price was ~INR 5,651/t and ~INR 5,851/t in
FY10 and FY11, respectively.
• Domestic coking coal usage in FY11 was ~3.5 mt, of which ~1.5 mt was sourced
from BCCL. BCCL has increased coking coal prices from INR 6,450/t to INR 7,500/t.
• SAIL has initiated quantity discounts and increased the interest-free credit periods to
ensure offloading of accumulated inventory.
Company Description
Steel Authority of India (SAIL) is the largest steel-maker in India (fifteenth-largest in the
world), and is one of the Government of India’s ‘Navratna’ companies with saleable steel
capacity of 13 mt. The company has the distinction of being India’s largest producer of
iron ore and of having the country’s second largest mines network.
Ranked amongst the top ten public sector companies in India in terms of turnover, it
produces both carbon and special steel for the construction, engineering, power, railway,
automotive, and defense industries and benefits from 100% self-sufficiency in iron ore.
The company enjoys a near-monopoly position in the lucrative market for rails and heavy
plates in India.
Its units are located near iron ore and non-coking coal reserves, primarily in the eastern
and central parts of the country. SAIL has merged Indian Iron and Steel Company, an
ailing subsidiary, with itself and is awaiting the allocation of Chiria iron ore mines, which
is currently being opposed by the Jharkhand government.
Investment Theme
SAIL’s product mix has been improving gradually with reduction in semis and some
improvement in production of value-added products. SAIL’s costs such as employee,
stores & spares and power costs have been consistently reducing since Q2FY09. This,
coupled with the healthy balance sheet, mitigates the issue of lower volume growth.
Key Risks
Higher than anticipated increase in staff, raw material and other operating costs
Deterioration in product mix
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lower volumes and blended realisations dent EBITDA
Steel Authority of India (SAIL) reported net sales of ~INR 119 bn in Q4FY11, up
~7% Q-o-Q (flat Y-o-Y) and ~9% below our estimate. This variation was
primarily due to lower-than-expected volumes and blended realizations which
came in at ~3.14 mt (our expectation: 3.4 mt) and ~INR 38k/t (our
expectation: 38.4k/t), respectively. We had estimated a realization increase of
~INR 4k/t, whereas it increased by INR 3.7k/t. Moreover, per tonne expenditure
on all cost fronts was higher than estimated by ~INR 1k/t, resulting in EBITDA/t
of ~INR 6.7k/t, ~17% below estimate. Consequently, EBITDA, at ~INR 21.2 bn
(up 30% Q-o-Q, down 25% Y-o-Y), was ~24% below estimate. Net profit, at INR
15.1 bn, tracked EBITDA and was 19% lower than estimate.
Debt catapults as capex soars
The company incurred a capex of INR 32.8 bn in Q4FY11, up 5% Y-o-Y, against
INR 29 bn in Q3FY11 on its expansion-cum-modernisation projects. While debt
has jumped significantly from INR 142 bn at Q3FY11 end to INR 201.6 bn at
Q4FY11 end, cash on balance sheet increased correspondingly from INR 135 bn
to INR 170 bn. Thus, net debt has sharply catapulted from INR 7 bn to INR 31.6
bn sequentially in Q4FY11. Capex for FY11 was INR 113 bn, up 6% Y-o-Y.
Expansion projects on revised schedules; Salem plant yet to stabilise
We understand that the expansion projects at all locations are tracking revised
schedules, the earliest of which—IISCO (2 mtpa) and Bokaro (net 0.2 mtpa)—
are to be completed by December 2011. The 175 ktpa Salem plant expansion
was completed in September 2010, but is yet to fully stabilise.
Outlook and valuations: Subdued quarter; maintain ‘HOLD’
Volumes continue to disappoint with FY11 volume at 11.7 mt, ~2.5% below our
estimate, with ~1.1 mt of steel inventory. Moreover, cost pressure from coking
coal will persist as ~1.6-1.7 mt of high cost carry forward coking coal inventory
at USD 300/t is to be utilized, which to some extent will be negated by the 1 mt
spillover coking coal at USD 210-225/t from Q3FY11 and Q4FY11. We continue
to maintain ‘HOLD/ Sector Underperformer’ recommendation/ rating on the
stock.
Key highlights of conference call
• Saleable steel production and sales volume for FY11 was ~12.9 mt and ~11.7 mt
respectively.
• The current wage cost is the normalized reflection of wages and expected to remain
stable, except for increments and increases in actuarial valuation as well as to
account for DA. Wage revision for non executives is scheduled for March 2012. Non
executives form ~60% of the total employee force.
• Royalty has increased from INR 96/t in FY10 to INR 222/t in FY11.
• The capex for FY11 was INR 113 bn against the budgeted INR 123 bn. The lowerthan-
expected spending was on account of delay in tendering of orders at the Bhilai
Steel Plant expansion. FY12 capex is expected to be INR 140 bn.
• BCCL has increased domestic coking coal prices by ~17%, whereas CCL and WCL
have increased coking coal prices by ~8-10%.
• The Bokaro Steel Plant with the new 1.2 mtpa CRM is on schedule to be completed by
December 2011. All the other expansions at Rourkela (2.3 mtpa), Bhilai (~3.4 mtpa),
and Durgapur (0.5 mtpa) will be completed between December 2012 and March
2013.
• The high cost carry forward coking coal inventory at USD 300/t currently stands at
~1.6-1.7 mt and is expected to be utilized in FY12. The company utilized ~0.6 mt of
USD 300/t coking coal in Q4FY11, much higher than our expectation of 0.22 mt. SAIL
will also have ~1 mt of spillover coking coal at USD 210-225/t from Q3FY11 and
Q4FY11.
• Average landed domestic coking coal price was ~INR 5,651/t and ~INR 5,851/t in
FY10 and FY11, respectively.
• Domestic coking coal usage in FY11 was ~3.5 mt, of which ~1.5 mt was sourced
from BCCL. BCCL has increased coking coal prices from INR 6,450/t to INR 7,500/t.
• SAIL has initiated quantity discounts and increased the interest-free credit periods to
ensure offloading of accumulated inventory.
Company Description
Steel Authority of India (SAIL) is the largest steel-maker in India (fifteenth-largest in the
world), and is one of the Government of India’s ‘Navratna’ companies with saleable steel
capacity of 13 mt. The company has the distinction of being India’s largest producer of
iron ore and of having the country’s second largest mines network.
Ranked amongst the top ten public sector companies in India in terms of turnover, it
produces both carbon and special steel for the construction, engineering, power, railway,
automotive, and defense industries and benefits from 100% self-sufficiency in iron ore.
The company enjoys a near-monopoly position in the lucrative market for rails and heavy
plates in India.
Its units are located near iron ore and non-coking coal reserves, primarily in the eastern
and central parts of the country. SAIL has merged Indian Iron and Steel Company, an
ailing subsidiary, with itself and is awaiting the allocation of Chiria iron ore mines, which
is currently being opposed by the Jharkhand government.
Investment Theme
SAIL’s product mix has been improving gradually with reduction in semis and some
improvement in production of value-added products. SAIL’s costs such as employee,
stores & spares and power costs have been consistently reducing since Q2FY09. This,
coupled with the healthy balance sheet, mitigates the issue of lower volume growth.
Key Risks
Higher than anticipated increase in staff, raw material and other operating costs
Deterioration in product mix
No comments:
Post a Comment