SAIL - March 2013 Results Preview - Motilal Oswal

- Net sales to decrease 6% YoY on lower realizations despite higher volumes: We expect net sales to decline 6% YoY (up 20% QoQ) to INR128b due to lower realizations, despite higher volumes. Sales volumes are likely to increase 3% YoY to 3.3m tons. Realization is expected to decline 9% YoY (flat QoQ) to INR38,836/ton. Despite repeated efforts by domestic steel mills to increase prices, weak demand prevented the price hike to materialize.

- Margins to improve 62% QoQ to USD124/ton: We expect EBITDA/ton to increase 62% QoQ to USD124/ton on improving operating leverage due to higher volumes and lower coking coal cost. Other income would fall by 31% QoQ to INR1.5b as cash is being used to support capex.

- INR720b capex benefits to accrue slowly; Maintain Sell: We expect earnings to decline at 9% per annum over FY12-15E, despite 10% CAGR in volumes, due to SAIL's uncompetitive cost structure, execution delays, decline in steel realization and poor operating efficiencies. Full benefits of the INR720b capex will accrue gradually due to poor execution. The stock still appears expensive at 8.8x FY15E EPS and at an EV of 5.9x FY15E EBITDA. Maintain Sell.

Source : Equity Bulls

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