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SAIL: Sailing in a difficult quarter - Views on News from Equitymaster
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SAIL: Sailing in a difficult quarter
Jul 30, 2010

SAIL has announced its 1QFY11 results. The company has reported a 0.3% YoY and 12% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 0.3% YoY during 1QFY11 on account of lower other operating income.
  • Crude steel production grows by 2% YoY to 3.34 m tonnes.
  • EBITDA margin contracts marginally to 20.2% during the quarter from 20.5% in 1QFY10 despite lower raw material costs as staff cost increases by 10% (both as a percentage of sales).
  • Other income declines by 29% during the period.
  • Bottomline registers a decline of 12% YoY during 1QFY11 on account of lower topline and operating margins coupled with higher interest and depreciation costs.

Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 91,634 91,333 -0.3%
Expenditure 72,820 72,905 0.1%
Operating profit (EBDITA) 18,814 18,429 -2.0%
EBDITA margin (%) 20.5% 20.2%  
Other income 5,401 3,862 -28.5%
Interest 837 1,296 54.9%
Depreciation 3,275 3,505 7.0%
Profit before tax 20,103 17,489 -13.0%
Tax 6,798 5,723 -15.8%
Profit after tax/(loss) 13,304 11,767 -11.6%
Net profit margin (%) 14.5% 12.9%  
No. of shares (m)   4,132  
Diluted earnings per share (Rs)*   16  
Price to earnings ratio (x)*   12.8  
*On trailing twelve months earnings

What has driven performance in 1QFY11?
  • SAIL reported a 0.3% YoY decline in topline on a standalone basis during 1QFY11. During the quarter, the company’s crude steel production grew by 2% YoY to 3.34 m tonnes (MT). It produced 1.18 MT of value-added products during 1QFY11 registering a growth of 3% YoY. The average capacity utilisation was 110% in saleable steel, 105% in hot metal and 128% in concast production.

  • The adverse impact of increase in prices of inputs such as coal, ferro-alloys and nickel was partially neutralised by better product-mix and higher production of value-added steel. Staff cost increased by 10% as a percentage of sales during the quarter due to additional provision of Rs 3 bn towards employee-related benefits, compared to net reversal of Rs 2 bn in 1QFY10 towards provision for revision of salaries & wages.

    Cost break-up
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials 40,375 28,342 -29.8%
    % sales 44.1% 31.0%  
    Staff cost 10,797 20,117 86.3%
    % sales 11.8% 22.0%  
    Consumption of stores and spares 5,926 5,734 -3.2%
    % sales 6.5% 6.3%  
    Power and fuel 8,347 8,784 5.2%
    % sales 9.1% 9.6%  
    Other expenses 7,376 9,928 34.6%
    % sales 8.0% 10.9%  
    Total cost 72,820 72,905 0.1%
    % sales 79.5% 79.8%  

  • SAIL produced 300,000 tonnes of coal from its captive mines at Chasnalla, Jitpur and Ramnagore during 1QFY11, a growth of 18% YoY. The company plans to expand its existing captive coal mines at Chasnalla, Jitpur and Ramnagore, and develop new mines at Tasra and Sitanala.

  • SAIL has laid out plans for a capital expenditure of Rs 123 bn planned for FY11. The upgradation of blast furnace 2 at Bokaro Steel Plant was completed during 1QFY11 at a cost of over Rs 8 bn. The entire upcoming facilities at the Salem Steel Plant are in readiness and hot trials of the same are scheduled in a few days.

  • The company expects to make headway in the strategic alliance with POSCO for the Finex process plant at Bokaro as well as with Kobe Steel and Nippon on the technology front in the coming quarters.

What to expect?
At current price of Rs 204, the stock is trading at a multiple of 1.7x our expected FY13 book value per share. As far as our outlook on SAIL stock is concerned, we remain cautious at these levels.

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