SAIL - 1QFY2013 Result Update - Angel Broking

Steel Authority of India (SAIL)'s top-line and bottom-line for Q1FY2013 were lower than our expectations on account of lower than expected sales volumes. The adjusted PAT was lower than our estimate by 11.5%. We recommend a Neutral rating on the stock.

Lower volumes drag down top-line: During 1QFY2013, SAIL's net sales declined by 1.6% yoy to Rs.10,641cr (below our estimates of Rs.13,249cr) mainly due to lower volumes which were down 9.1% yoy to 2.5mn tonne. The lower volumes were partially offset by an increase in average realization which improved by 8.3% yoy to Rs.42,563/tonne.

Lower raw material expenses improve company's EBITDA: Fuel and power cost and other expenditure increased by 20.3% and 119.7% yoy to Rs.1,224cr and Rs.1,710cr, respectively. However raw material costs declined by 12.4% yoy to Rs.4,335cr. Hence, the EBITDA increased by 15.5% yoy to Rs.1,515cr and the EBITDA margin improved by 210bp yoy to 14.2% (above our estimate of 14.0%).

Forex loss and lower other income drags down bottom-line: The company reported an exceptional item related to forex loss of Rs.257cr in 1QFY2013, compared to an exceptional loss of Rs.12cr in 1QFY2012. The other income declined substantially by 70.4% yoy to Rs.82cr. Hence, the reported PAT declined by 15.8% yoy to Rs.696cr. However, excluding exceptional items, the adjusted PAT increased by 13.6% yoy to Rs.953cr (below our estimate of Rs.1,077cr) during 1QFY2013.

Outlook and valuation: SAIL is expanding its saleable steel production capacity from 12.5mn tonne to 24mn tonne by FY2015. However, the company has reported delays and cost overruns in several of its expansion plans during the past one year. Going forward, we do not rule out further delays and cost overruns in the company's expansion plans. Moreover, the current rich valuation of 6.7x FY2014E EV/EBITDA discounts its anticipated volume growth over FY2012-FY2015E. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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