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SAIL: Profits rise on lower taxes - Views on News from Equitymaster
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SAIL: Profits rise on lower taxes
Feb 18, 2014

SAIL has announced its results for the quarter ended December 2013. The company has reported an increase of 7.7% YoY and 10% YoY in net sales and net profits for the quarter ended December. 2013. Here is our analysis of the results.

Performance summary
  • The topline of the company increased by 7.7% YoY due to higher volumes.
  • Operating profits increased by 2.1% YoY. Operating margins declined by 0.5% YoY.
  • At the bottomline level, profits for the quarter increased by 10% YoY. Net profit margin remained flat.
  • For the nine month ended December, 2013, net sales and net profits increased by 3.2% YoY and 25.6% YoY respectively.
  • The company has announced an interim dividend of Rs 2.02 per share as compared to Rs 1.6 last year.

Financial performance: A snapshot
(Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
Net sales 106,391 114,587 7.7% 322,030 332,239 3.2%
Expenditure 95,302 103,267 8.4% 285,032 302,960 6.3%
Operating profit (EBDITA) 11,090 11,320 2.1% 36,998 29,279 -20.9%
Operating profit margin (%) 10.4% 9.9%   11.5% 8.8%  
Other income 2,503 2,088 -16.6% 7,881 6,269 -20.5%
Interest (net) 2,220 2,468 11.1% 5,331 6,551 22.9%
Depreciation 4,049 4,087 0.9% 12,094 12,004 -0.7%
Profit before tax 7,323 6,853 -6.4% 27,455 16,994 -38.1%
Exceptional Item (307) 199 NA (2,458) 9,202 NA
Tax 2,173 1,726 -20.6% 7,758 4,546 -41.4%
Profit after tax/(loss) 4,843 5,326 10.0% 17,239 21,649 25.6%
Net profit margin (%) 4.6% 4.6%   5.4% 6.5%  
No. of shares (m)         4,131  
Diluted earnings per share (Rs)         6.3  
P/E ratio (x)*         9.6  
*trailing twelve month earnings

What has driven performance in 3QFY14?
  • The topline of the company increased by 7.7% YoY. During the quarter, the company reported sales volumes at 2.94 mt (million tonne) (2.8 mt in 3QFY13 and 3.0 mt in 2QFY14). The EBITDA/tonne during the quarter came in at Rs 3,851/tonne, higher by 34.1% QoQ but lower by 7.1% YoY (Rs 4,144/tonne in 3QFY13 and Rs 2,871/tonne in 2QFY14)

    Break-up of operating costs
    (Rs m) 3QFY13 3QFY14 Change 9MFY13 9MFY14 Change
    Raw Materials 45,831 47,080 2.7% 135,316 139,129 2.8%
    % of sales 43.1% 41.1%   42.0% 41.9%  
    Power & fuel 11,140 12,298 10.4% 36,119 36,801 1.9%
    % of sales 10.5% 10.7%   11.2% 11.1%  
    Employee cost 20,815 22,678 9.0% 61,638 70,580 14.5%
    % of sales 19.6% 19.8%   19.1% 21.2%  
    Other Expenditure 17,516 21,211 21.1% 51,958 56,451 8.6%
    % of sales 16.5% 18.5%   16.1% 17.0%  

  • At the operating level, operating profits of the company increased by 2.1% YoY. The company also witnessed an increase in coking coal costs during the quarter on account of lower supplies of coking coal from Coal India. The share of imported coking coal in the overall requirement has inched up to 81%.

  • Net profit of the company increased by 10% YoY on back of higher sales and lower taxes. Realisation increased 2% QoQ, while costs fell 1% QoQ.
What to expect?
SAIL incurred capex of Rs 27,740 m/Rs 73,830 m in 3QFY14/9MFY14, respectively, broadly on track to achieve its FY14 capex guidance of Rs 115,000 m. The company capitalised projects worth Rs 140,000 m at the end of December 2013. Net debt increased from Rs 194,910 m at the end of September 2013 to Rs 214,270 m at the end of December 2013.

During the quarter, the company has reached a consensus with its workers union on the long pending wage hike bill for the wage hike of its non-executive employees. The settlement of the wage hike bodes well for the company. The cash outflow on account of this, however, is expected to commence from FY15E onwards (50% in FY15E and 50% in FY16E).

At the current price of Rs 61, the stock trades at around 9.6 times its trailing twelve month earnings. We maintain a Hold view on the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also, within your overall exposure to equities, please ensure that you broadly follow our suggested asset allocation and that no single large cap stock comprises more than 5% of your portfolio

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