Sell Steel Authority of India - Elara Capital

• Rating : Sell
• Target Price : INR180
• Downside : 13%
• CMP : INR206 (as on 28 May 2010)

Improved product mix drives profits

Enriched product mix fuels profitability growth

Steel Authority of India (SAIL) reported a marginal 1.5% YoY growth in its Q4FY10 net revenues. However, the EBITDA for the period increased 48.8% YoY and 17.8% QoQ to INR28,225mn on the back of improved realizations. The adjusted PAT for the quarter stood at INR20,849mn registering an increase of 41.9% YoY and 24.4% QoQ. Although, the volume sales during Q4FY10 declined 5.8% YoY to 3.4mn tonnes, the improved realizations (up 7.8% YoY) and marginal reduction in cost per tonne (down 1.9% QoQ) drove the EBITDA higher.

Operational highlights

Volumes sales during the year stood at 3.4mn tonnes as compared to 3.6mn tonnes in Q4FY09 and 2.9mn tonnes in Q3FY10. The realizations during the quarter stood at INR 35,162 as compared to INR32,629 in Q4FY09 and INR32,984 in Q3FY10. Higher proportion of finished products in the volume sold was the main reason for the improvement in realizations for the company. EBITDA per tonne stood at INR8,301 as compared to INR5,258 in Q4FY09 and INR8,153 in Q3FY10.

Continue to maintain SELL with a revised target price of INR180

SAIL has posted an impressive performance during the quarter under review. We remain positive on the operational performance of the company given its security in terms of iron ore. However, the delayed capital expenditure programme, the prospective dilution and an increased debt due to the upward revision in capital expenditure cast a doubt on the sustenance of return ratios going ahead. The lack of volume growth could also result in a lower growth compared to competitors in operations. We maintain our SELL recommendation on SAIL with a revised target price of INR180.

Source : Equity Bulls

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