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SAIL: Volumes, coal prices boost profits - Views on News from Equitymaster
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SAIL: Volumes, coal prices boost profits
Jan 28, 2010

Performance summary
  • Topline grows by 12% YoY during 3QFY10 on account of higher volumes and sales mix.
  • EBITDA margin expands to 26% during the quarter from 13% in 3QFY09 as raw material and staff cost decline by 8% and 4% respectively as a percentage of sales.
  • Other income declines by 27% during the quarter.
  • Bottomline registers a growth of 99% YoY during 3QFY10 on account of higher operating margins.

Financial snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 87,927 98,787 12.4% 316,946 290,775 -8.3%
Expenditure 76,641 73,002 -4.7% 247,808 222,293 -10.3%
Operating profit (EBDITA) 11,287 25,784 128.4% 69,138 68,482 -0.9%
EBDITA margin (%) 12.8% 26.1%   21.8% 23.6%  
Other income 5,550 4,068 -26.7% 13,700 14,831 8.3%
Interest 1,078 1,101 2.2% 2,121 2,673 26.0%
Depreciation 3,194 3,390 6.2% 9,553 9,988 4.6%
Profit before tax 12,566 25,361 101.8% 71,164 70,652 -0.7%
Tax 4,132 8,605 108.3% 24,283 23,957 -1.3%
Profit after tax/(loss) 8,433 16,756 98.7% 46,881 46,695 -0.4%
Net profit margin (%) 9.6% 17.0%   14.8% 16.1%  
No. of shares (m)         4,132  
Diluted earnings per share (Rs)*         15  
Price to earnings ratio (x)*         14.5  
*On trailing twelve months basis

What has driven performance in 3QFY10?
  • SAIL reported a topline growth of 12% YoY during 3QFY10 on account of higher volumes. In volume terms, sales at 2.9 m tonnes during the quarter were 25% higher than 3QFY09. Production of value-added steel also increased by 25% YoY during the quarter. The lower growth in turnover as compared to volume growth was primarily due to 12% lower sales realisation during the quarter.

  • The companyís operating margin expanded to 26% during the quarter from 13% in 3QFY09 as raw material and staff cost fell by 8% and 4% respectively as a percentage of sales. The cost of imported coking coal was lower, though other input costs continued to move up. The royalty on iron ore, as well as cost of ferro-alloys, zinc, aluminium etc. increased further.

    Cost break-up
    (Rs m) 3QFY09 3QFY10 Change
    Raw materials 37,620 34,514 -8.3%
    % sales 42.8% 34.9%  
    Staff cost 17,459 15,712 -10.0%
    % sales 19.9% 15.9%  
    Consumption of stores and spares 6,647 6,364 -4.3%
    % sales 7.6% 6.4%  
    Power and fuel 7,128 7,180 0.7%
    % sales 8.1% 7.3%  
    Other expenses 7,786 9,232 18.6%
    % sales 8.9% 9.3%  
    Total cost 76,641 73,002 -4.7%
    % sales 87.2% 73.9%  

  • SAIL incurred a capital expenditure of Rs 28 bn in 3QFY10 as part of its modernisation & expansion schemes. Modernisation & expansion projects at the Salem steel plant which involve installation of new steel making facilities and a new cold rolling mill are nearing completion. Several stand-alone projects were commissioned during the quarter.

  • The 3QFY10 and 9mFY10 results include the performance of Bharat Refractories, which has been amalgamated with SAIL. The corresponding figures in the previous year do not include the results of Bharat Refractories.

  • The company has approved an interim dividend of Rs 6.6 bn amounting to Rs 1.6 per share.

What to expect?
At current price of Rs 216, the stock is trading at a multiple of 2x our expected FY12 book value per share. The performance of the company has been nearly in line with our estimates. Hence we donít feel the need to revise our estimates. As far as our outlook on SAIL stock is concerned, we remain cautious at these levels.

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