SAIL: On path to profits - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

SAIL: On path to profits

Jul 30, 2003

Domestic steel sector behemoth and India’s largest public sector steel producer, Steel Authority of India Ltd. (SAIL), announced its 1QFY04 results, which were nothing less than impressive. The company’s topline grew by a strong 12% on the back of strong volume sales and continuing strength seen in steel prices. Exports, which grew 162% YoY, also assisted the company’s topline performance. Domestic demand ruled strong as a result of a buoyant automobile segment and the government’s infrastructure drive. Exports were strong as China continued to import steel to meet its requirements.

(Rs m) 1QFY03 1QFY04 Change
Net Sales 38,119 42,749 12.1%
Other Income 53 38 -28.3%
Expenditure 34,706 34,792 0.2%
Operating Profit (EBDIT) 3,413 7,957 133.2%
Operating Profit Margin (%) 9.0% 18.6%  
Interest 3,682 2,632 -28.5%
Depreciation 2,873 2,816 -2.0%
Profit before Tax -3,089 2,547  
Tax - -  
Profit after Tax/(Loss) (3,089) 2,547  
Net profit margin (%) -8.1% 6.0%  
No. of Shares 4,130.0 4,130.0  
Diluted Earnings per share* -3.0 2.5  
P/E Ratio   9.3  
(* annualised)      

On the bottomline front, SAIL posted yet another profitable quarter as compared to losses in the corresponding period last year. It must be noted that this is the second consecutive quarter of profits for the steel giant after registering losses for over 4 years. The company is aiming to end FY04 on a positive note.

SAIL managed to keep a close check on its expenses, which practically remained unchanged YoY despite the strong topline growth. The effect of this is visible in the huge improvement in operating margins of the company, which increased by 960 basis points. The company’s efforts at rationalizing its workforce and keeping a control on stores and power consumed and administrative expenses has all contributed to improving the company’s operating efficiency.

Further, the company’s bottomline was aided by a sharp reduction in interest outgo (down 29%). The company has been consistently paring down its debt and replacing high cost debt with lower interest costs, which has in effect reduced its interest outgo. Depreciation also reduced by a marginal 2%.

Going forward, the company plans to achieve a 6-7% growth in production. Increased production combined with improved product-mix and cost control measures should help the company achieve the goal of turning back into black in the current fiscal. However concerns remain in the form of its equity investments of Rs 3.7 bn in its subsidiary company, the Indian Iron & Steel Co. Ltd., a sick company. SAIL has not provided for permanent diminution in the value of these investments, which it should have ideally done, as per prudent accounting norms.

At Rs 23, the stock is trading at a P/E multiple of 9.3x its 1QFY04 annualized earnings. It must be noted that on the back of continuous reduction in losses and now realizing quarterly profits, the stock has already appreciated from Rs 7 levels to the current Rs 23 levels, an appreciation of 230% in the last three quarters alone. With the steel sector prospects remaining sound on the domestic as well as the exports front, the company seems well on target to achieve the much-awaited turnaround (on an annual basis). However, much depends on the sustainability of international steel prices, which in turn is considerably dependant on Chinese demand for the commodity. Moreover, steel being a cyclical commodity, there could be some weakness in steel prices during 4QFY04 as domestic players increase their capacities. Also, though the performance is encouraging, it has to be remembered that SAIL is a PSU. The ability to foresee trend and take decisions based on the same is likely to be slower compared to its private sector peers. In this context, the risk profile of the stock is on the higher side.


Equitymaster requests your view! Post a comment on "SAIL: On path to profits". Click here!

  

More Views on News

SAIL Announces Quarterly Results (1QFY20); Net Profit Down 87.3% (Quarterly Result Update)

Aug 13, 2019 | Updated on Aug 13, 2019

For the quarter ended June 2019, SAIL has posted a net profit of Rs 688 m (down 87.3% YoY). Sales on the other hand came in at Rs 148 bn (down 6.8% YoY). Read on for a complete analysis of SAIL's quarterly results.

SAIL Announces Quarterly Results (4QFY19); Net Profit Down 42.6% (Quarterly Result Update)

Jun 3, 2019 | Updated on Jun 3, 2019

For the quarter ended March 2019, SAIL has posted a net profit of Rs 5 bn (down 42.6% YoY). Sales on the other hand came in at Rs 185 bn (up 8.6% YoY). Read on for a complete analysis of SAIL's quarterly results.

SAIL 2017-18 Annual Report Analysis (Annual Result Update)

Dec 21, 2018 | Updated on Dec 21, 2018

Here's an analysis of the annual report of SAIL for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of SAIL. Also includes updates on the valuation of SAIL.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why am I Recommending Caution? (Fast Profits Daily)

Sep 9, 2020

This is why I have changed my short-term view on the market.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

SAIL SHARE PRICE


Sep 22, 2020 03:13 PM

TRACK SAIL

COMPARE SAIL WITH

MARKET STATS