Bad performance continues, maintain sell
SAIL’s operational performance continued to disappoint as realizations were muted (down ~9% YoY but flat QoQ) and sales volumes were flat at 3.2MT in a competitive domestic market with low demand and high competition. EBITDA stood at ~Rs9.2bn and margin remained dismal at 7.6% (multi year low) on account of higher conversion and fixed costs and high cost inventory sales. Adj. PAT stood at Rs4.4bn (down ~60% YoY). Progress of expansion projects remains slow and incremental production guidance is of 1MT in FY14E. We continue to believe that SAIL’s competitive strength remains low among large domestic steel producers and see profitability remaining under pressure going ahead as inventory (~1.2MT) is slowly depleted going ahead. We have revised our volume estimates lower for FY14E/15E to 12.2MT/14.2MT. We reduce our target price to Rs49 and maintain sell.
Realisations stay muted and volumes flat: SAIL’s blended realizations were muted at Rs38008/tonne (lower by 9% YoY) on account of subdued domestic demand and stiff competition from peers. Steel sales volume stood at a muted 3.2MT (in line with estimates but flat YoY). SAIL added ~0.3 MT of finished steel inventory in FY13 and as a result finished steel inventory reached ~1.2 MT by the end of FY13 in addition to semi product inventory.
EBITDA remains dismal: EBITDA stood at Rs9.2bn, down by ~51% YoY on account of lower realizations and high expenses as inventory clearance increased overall expenses. EBITDA margin of 7.6% was down by 640bps YoY and SAIL continued to remain the highest cost converter among large domestic steel players on account of high operational costs. Inventory sales going forward could keep margin subdued in the coming few quarters also.
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SAIL’s operational performance continued to disappoint as realizations were muted (down ~9% YoY but flat QoQ) and sales volumes were flat at 3.2MT in a competitive domestic market with low demand and high competition. EBITDA stood at ~Rs9.2bn and margin remained dismal at 7.6% (multi year low) on account of higher conversion and fixed costs and high cost inventory sales. Adj. PAT stood at Rs4.4bn (down ~60% YoY). Progress of expansion projects remains slow and incremental production guidance is of 1MT in FY14E. We continue to believe that SAIL’s competitive strength remains low among large domestic steel producers and see profitability remaining under pressure going ahead as inventory (~1.2MT) is slowly depleted going ahead. We have revised our volume estimates lower for FY14E/15E to 12.2MT/14.2MT. We reduce our target price to Rs49 and maintain sell.
Realisations stay muted and volumes flat: SAIL’s blended realizations were muted at Rs38008/tonne (lower by 9% YoY) on account of subdued domestic demand and stiff competition from peers. Steel sales volume stood at a muted 3.2MT (in line with estimates but flat YoY). SAIL added ~0.3 MT of finished steel inventory in FY13 and as a result finished steel inventory reached ~1.2 MT by the end of FY13 in addition to semi product inventory.
EBITDA remains dismal: EBITDA stood at Rs9.2bn, down by ~51% YoY on account of lower realizations and high expenses as inventory clearance increased overall expenses. EBITDA margin of 7.6% was down by 640bps YoY and SAIL continued to remain the highest cost converter among large domestic steel players on account of high operational costs. Inventory sales going forward could keep margin subdued in the coming few quarters also.
Outlook and earnings revision: Expansion at various plants continues behind schedule and commissioning of BF and other facilities at Rourkela and IISCO are expected in Q1 and Q3 respectively in FY14E which should result in increase in production by ~1 MT of finished steel in FY14E. SAIL’s finished steel inventory stood at ~1.2MT and capex guidance for FY14E has been revised down to ~Rs115bn. We further downgrade our volume estimates for SAIL for FY14E/15E to 12.2MT/14.2MT on the back of delayed expansions and subdued demand. We also reduce our EBITDA estimates for SAIL by 15.5%/7.3% for FY14E/15E.
Valuations, maintain Sell: We have remained bearish on SAIL for long on account of reduced competitive capability and high operational cost structure in a tough environment. We remain skeptical on the company’s ability to push volumes in a competitive market going forward and simultaneously improve margin and realizations significantly despite lower raw material costs. We value the company at 5.5x FY15E EV/EBITDA and expected outstanding CWIP at 0.7x to arrive at a target price of Rs49. We maintain Sell call on the stock.
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