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Steel Authority Of India
1QF12: Subdued Results
Due to Higher Wage Costs
Quick comment: We remain EW as SAIL’s expansion
and modernization projects are being delayed by
another 3-9 months even though production costs seem
to have peaked out and EBITDA/t is close to a bottom.
What's new: SAIL reported a PAT of Rs.8.38 b, down
13% YoY and 44% QoQ. EBITDA at Rs.11.9 b was
down 31% YoY, 44% QoQ and 9% lower than MSe.
EBITDA per ton stood at Rs.4350/t (the lowest of the
past 21 quarters except for the recession hit quarters of
3QF09 and 4QF09) dropping 36% sequentially. EBITDA
margin was 11.1% in 1QF12 vs.17.7% in 4QF11
What we liked: Realizations at Rs.39,450/t were up 2%
QoQ vs. our expectation of 2% decline. The steel price
correction is turning out to be less than what we had
thought earlier (this was also demonstrated in JSW and
JSPL’s 1QF12 results). Interestingly the company in its
post earnings call said that it had held prices at current
levels in last three months even though the steel market
was not looking too strong. SAIL expects prices to be
stable in 2QF12 and to see some uptick beginning
3QF12.
Raw material cost per ton was well-controlled at
Rs.16315/t vs. our expectation of Rs.17050/t despite
higher coking coal and coke costs this quarter. This was
aided by lower proportion of hard coking coal used and
some support from lower priced coal from earlier
contracts. SAIL expects coal costs to decline in 2QF12
and margins to improve beginning 2HF12.
Continuous cast steel proportion was a healthy 70%.
What we didn’t like: Staff costs increased 10% QoQ
and 12% YoY to Rs22.5 b (MSe Rs 19b) due to increase
in Dearness Allowance and gratuity provisioning. The
company has guided for F12 staff costs of Rs 80b (3%
below MSe).
Power and Fuel costs per ton increased 22% QoQ owing to
increased thermal coal costs.
Other expenditure per ton was the second highest of the last 36
quarters at Rs.3425/t. This is partly due to increase in royalty
expenses which increased to Rs.360/t of iron ore from Rs.216/t
of iron ore in 4QF11.
Projects being pushed out further – we see some
downside risks to our volume growth forecasts for F12
and F13.
The company has now guided that ISP will now be able to start
steel production by 2QF13 even though other facilities may
start between December 2011 and March 2012. Also the
capacity utilization is likely to be about 50% in the nine months
for which steel making facility is likely to be operational during
F12.
On Bhilai and Durgapur the company continues to target
integrated commissioning by March 2013 but now expects the
full benefits from these projects to flow in F15.
On the positive side, SAIL remains on target on RSP and
Bokaro projects.
The company expects to commission RSP blast furnace and
steel converter by March 2012 to June 2012 and the plate mill
by December 2012.
For Bokaro CR mill too the target commissioning date remains
December 2011
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Steel Authority Of India
1QF12: Subdued Results
Due to Higher Wage Costs
Quick comment: We remain EW as SAIL’s expansion
and modernization projects are being delayed by
another 3-9 months even though production costs seem
to have peaked out and EBITDA/t is close to a bottom.
What's new: SAIL reported a PAT of Rs.8.38 b, down
13% YoY and 44% QoQ. EBITDA at Rs.11.9 b was
down 31% YoY, 44% QoQ and 9% lower than MSe.
EBITDA per ton stood at Rs.4350/t (the lowest of the
past 21 quarters except for the recession hit quarters of
3QF09 and 4QF09) dropping 36% sequentially. EBITDA
margin was 11.1% in 1QF12 vs.17.7% in 4QF11
What we liked: Realizations at Rs.39,450/t were up 2%
QoQ vs. our expectation of 2% decline. The steel price
correction is turning out to be less than what we had
thought earlier (this was also demonstrated in JSW and
JSPL’s 1QF12 results). Interestingly the company in its
post earnings call said that it had held prices at current
levels in last three months even though the steel market
was not looking too strong. SAIL expects prices to be
stable in 2QF12 and to see some uptick beginning
3QF12.
Raw material cost per ton was well-controlled at
Rs.16315/t vs. our expectation of Rs.17050/t despite
higher coking coal and coke costs this quarter. This was
aided by lower proportion of hard coking coal used and
some support from lower priced coal from earlier
contracts. SAIL expects coal costs to decline in 2QF12
and margins to improve beginning 2HF12.
Continuous cast steel proportion was a healthy 70%.
What we didn’t like: Staff costs increased 10% QoQ
and 12% YoY to Rs22.5 b (MSe Rs 19b) due to increase
in Dearness Allowance and gratuity provisioning. The
company has guided for F12 staff costs of Rs 80b (3%
below MSe).
Power and Fuel costs per ton increased 22% QoQ owing to
increased thermal coal costs.
Other expenditure per ton was the second highest of the last 36
quarters at Rs.3425/t. This is partly due to increase in royalty
expenses which increased to Rs.360/t of iron ore from Rs.216/t
of iron ore in 4QF11.
Projects being pushed out further – we see some
downside risks to our volume growth forecasts for F12
and F13.
The company has now guided that ISP will now be able to start
steel production by 2QF13 even though other facilities may
start between December 2011 and March 2012. Also the
capacity utilization is likely to be about 50% in the nine months
for which steel making facility is likely to be operational during
F12.
On Bhilai and Durgapur the company continues to target
integrated commissioning by March 2013 but now expects the
full benefits from these projects to flow in F15.
On the positive side, SAIL remains on target on RSP and
Bokaro projects.
The company expects to commission RSP blast furnace and
steel converter by March 2012 to June 2012 and the plate mill
by December 2012.
For Bokaro CR mill too the target commissioning date remains
December 2011
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