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SAIL: Profits fall on Forex losses

Aug 6, 2012

Steel Authority of India Limited (SAIL) has announced its results for the quarter ended June 2012. The company has reported a decline of 1.5% YoY and 17.9% YoY in net sales and net profits for the quarter ended June 2012. Here is our analysis of the results.

Performance summary
  • The topline of the company declined by 1.5% YoY due to lower demand.
  • Operating profits increased by 13.8% YoY mainly due to lower employee cost. Operating margins improved by 1.9% YoY to 14.1%. The 8.5% rise in net realisations during the quarter helped offset higher input cost.
  • At the bottomline level, profits for the quarter declined by 17.9% YoY due to higher forex losses and lower other income. The company reported a forex loss of Rs 2.6 bn as compared to a loss of Rs 117 m in the corresponding quarter last year. Net profit margin declined by 1.3% YoY and stood at 6.5%.
  • Other income during the quarter declined by 40.3% YoY.

Financial performance: A snapshot
(Rs m) 1QFY12 1QFY13 Change
Net sales 109,417 107,775 -1.5%
Expenditure 96,104 92,622 -3.6%
Operating profit (EBDITA) 13,313 15,153 13.8%
Operating profit margin (%) 12.2% 14.1%  
Other income 4,661 2,785 -40.3%
Interest (net) 1,713 1,249 -27.1%
Depreciation 3,748 4,018 7.2%
Profit before tax 12,512 12,670 1.3%
Exceptional Item (117) (2,569)  
Tax 3,913 3,137 -19.8%
Profit after tax/(loss) 8,482 6,964 -17.9%
Net profit margin (%) 7.8% 6.5%  
No. of shares (m) - 8,451  
Diluted earnings per share (Rs)   4.0  
P/E ratio (x)*   21.2  
*trailing twelve month earnings

What has driven performance in 1QFY13?
  • The topline of the company reported a decline of 1.5% YoY and 21% QoQ. This was due to lower sales volumes despite higher realization. Sales volumes decreased 9% YoY to 2.5 m tonnes despite production of 3 m tonnes which led to accumulation of inventory.

    Break-up of operating costs
    (Rs m) 1QFY12 1QFY13 Change
    Raw Materials 49,554 43,354 -12.5%
    % of sales 45.3% 40.2%  
    Power & fuel 10,171 12,240 20.3%
    % of sales 9.3% 11.4%  
    Employee cost 22,662 19,925 -12.1%
    % of sales 20.7% 18.5%  
    Other Expenditure 13718 17104 24.7%
    % of sales 12.5% 15.9%  

  • Operating profits of the company increased by 13.8% YoY. Except for fall in raw material cost, all the other cost like power and other expenses rose sequentially on per tonne basis. Coking coal cost have declined sequentially as it was impacted by one time provision of Rs 1.7 bn for increase in cost by Coal India in 4QFY12. EBITDA per tonne rose 11.9% QoQ due to higher realizations. EBITDA declined 12.6% QoQ.

  • Net profit of the company declined by 17.9% YoY and stood at Rs 6.9 bn. This includes the forex loss of Rs 2.57 bn on short term borrowings. Net profit margins of the company also declined by 1.5% YoY. SAIL has a gross debt of Rs 163.2 bn and investments of Rs 50 bn and has a net debt equity ratio at 0.41. SAIL currently has net debt of Rs 100.7 bn and has increased by 400% YoY.

What to expect?
SAIL has started progressive commissioning of the IISCO plant from May 2012 but has further delayed the integrated commissioning to March 2013. Bokaro CRM (1.2 mn tonne) will be completed by October 2012 and Rourkela new blast furnace will commission in March 2013. SAIL incurred a capex of Rs 19.6 bn in 1QFY13 and has guided for a capex of Rs 120 bn in FY13. SAIL has a MOU with Kobe Steel of Japan for setting up 0.5 m tonne iron nugget plant at a Durgapur Steel plant and will incur a capex of Rs15 bn.

However, many long-term positive developments have occurred in terms of raw material security eeample - receipt of mining lease for Rowghat mines, renewal of 800 m tonnes of iron ore reserves at Chiria/Gua, etc. At the current price of Rs 85, the stock trades at around 1.4x our estimated FY15 book value per share. We maintain a positive view on the stock.

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Jun 11, 2021 (Close)