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SAIL: Better sales mix to the rescue - Views on News from Equitymaster
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SAIL: Better sales mix to the rescue
Jun 2, 2010

SAIL has announced its FY10 results. The company has reported a 6% YoY decline and 10% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 6% YoY during FY10 on account of lower net realisations especially in 1HFY10.
  • EBITDA margin expands to 24.1% during the year from 20.6% in FY09 as staff cost declines by 6% as a percentage of sales.
  • Other income grows by 1% during the year.
  • Bottomline registers a growth of 10% YoY during FY10 on account of higher operating margins.
  • Board recommends a final dividend of Rs 1.7 per share, in addition to the interim dividend of Rs 1.6 per share.

Standalone financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 119,860 122,298 2.0% 437,171 413,072 -5.5%
Expenditure 98,767 91,327 -7.5% 346,934 313,620 -9.6%
Operating profit (EBDITA) 21,093 30,971 46.8% 90,237 99,452 10.2%
EBDITA margin (%) 17.6% 25.3%   20.6% 24.1%  
Other income 5,333 4,429 -17.0% 19,063 19,261 1.0%
Interest 427 1,347 215.4% 2,594 4,020 55.0%
Depreciation 3,305 3,384 2.4% 12,878 13,372 3.8%
Price escalation of previous year 160 -   160 -  
Profit before tax 22,854 30,668 34.2% 93,989 101,320 7.8%
Tax 8,002 9,819 22.7% 32,285 33,777 4.6%
Profit after tax/(loss) 14,852 20,849 40.4% 61,704 67,544 9.5%
Net profit margin (%) 12.4% 17.0%   14.1% 16.4%  
No. of shares (m)         4,132  
Diluted earnings per share (Rs)         16  
Price to earnings ratio (x)         12.1  

What has driven performance in FY10?
  • SAIL reported a 6% YoY decline in topline on a standalone basis during FY10. During the year the company produced 14.5 m tonnes of hot metal, 13.5 m tonnes of crude steel and 12.6 m tonnes of saleable steel. It also produced 4.6 m tonnes of value-added products. Despite the 7% YoY sales growth during FY10 in volume terms at 12.1 m tonnes, topline declined primarily on account of lower net sales realisations, especially in 1HFY10.

  • The improvement in SAIL's operating margins during FY10 was primarily driven by lower staff costs, as a percentage of sales. It achieved an overall reduction in employee strength by about 6,000, primarily on account of natural separation, even after fresh intake of about 1,800 employees.

    Cost break-up
    (Rs m) FY09 FY10 Change
    Raw materials 163,620 166,090 1.5%
    % sales 37.4% 40.2%  
    Staff cost 84,615 54,168 -36.0%
    % sales 19.4% 13.1%  
    Consumption of stores and spares 28,237 25,738 -8.9%
    % sales 6.5% 6.2%  
    Power and fuel 31,832 33,643 5.7%
    % sales 7.3% 8.1%  
    Other expenses 38,630 33,982 -12.0%
    % sales 8.8% 8.2%  
    Total cost 346,934 313,620 -9.6%
    % sales 79.4% 75.9%  

  • During the year, SAIL secured the mining lease of Rowghat mines in Chhattisgarh. With estimated reserves of 500 m tonnes of iron ore, the mines will meet Bhilai Steel Plant's needs for the next 30 years. The process for setting up a 14 m tonnes per annum mining facility at the site has been initiated. The company also obtained an in-principle clearance during the year from the Jharkhand government for renewal of the Budhaburu lease, which has a reserve of about 810 m tonnes of iron ore.

  • SAIL's capital expenditure touched Rs 106.1 bn during FY10. To meet the funding requirements, the company increased its market borrowings by over Rs 89 bn during the year. As on 31st March 2010, the company's total borrowings stood at Rs 165 bn, taking its debt-equity ratio to 0.5:1. Its cash reserves in term deposits stood at over Rs 220 bn as on that date.

  • The company's board of directors has recommended a final dividend of Rs 1.7 per share, in addition to the interim dividend of Rs 1.6 per share.

What to expect?
At current price of Rs 197.5, the stock is trading at a multiple of 2x our expected FY12 book value per share. As far as our outlook on SAIL stock is concerned, we remain cautious at these levels.

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