SAIL - No smooth sailing in store, maintain sell - Centrum

SAIL's operational performance continued to disappoint as realizations fell sharply (down ~7.2% QoQ and ~10.6% from Q1) and sales volumes remained muted in the domestic market with low demand and high competition. EBITDA stood at ~Rs9.6bn and margin remained dismal at 9.2% (down by 450bps YoY) on account of higher conversion and fixed costs. Adj. PAT stood at Rs5.1bn (adjusted for forex loss of Rs0.3bn).

Progress of expansion projects remains slow and inventory build up could further delay commissioning in our view. 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 (~1.6MT) is slowly depleted going ahead. We have revised our volume estimates lower for FY13E/14E to 11.1MT/13MT.

We reduce our target price to Rs78 and maintain Sell.

Source : Equity Bulls

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