SAIL - 4QFY2013 Result Review - Angel Broking

SAIL reported disappointing 4QFY2013 profitability performance as the net profit was below our estimates due to higher than expected employee costs and power costs. SAIL's 4QFY2013 net sales declined by 9.2% yoy to Rs. 12,162cr (above our estimates of Rs. 11,640cr) due to lower volumes coupled with lower realizations. The company's volumes declined 3.0% to 3.2mn tonnes. The company's realizations stood at Rs. 38,008/tonne, compared to Rs. 40,598/tonne in 4QFY2012. Staff costs and power costs increased 35.9% and 5.4% yoy to Rs. 2,473cr and Rs. 1,219cr, respectively. EBITDA therefore decreased by 50.6% yoy to Rs. 924cr and EBITDA margin contracted by 637bp yoy to 7.6%. The company reported an exceptional item related to forex gain of Rs. 16cr in 4QFY2013, and the tax rate also increased to 39.8% compared to 31.5% in 4QFY2012. Hence the adjusted net profit (excluding exceptional items) declined by 49.6% yoy to Rs. 430cr (significantly below our estimate of Rs. 725cr) in 4QFY2013.

We expect SAIL's operational and financial performance to be impacted by 1) inability to maintain/raise sales volumes amidst slower demand growth; 2) higher employee costs, and 3) delays/cost overruns in its brownfield expansion projects. SAIL is on the verge of expanding its saleable steel production capacity from 12.5mn tonnes to 24.0mn tonnes by FY2015. However, the current rich valuation discounts its anticipated volume growth over FY2012-FY2016E. Hence, we recommend Neutral view on the stock.

Source : Equity Bulls

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