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SAIL: Staff costs mar growth - Views on News from Equitymaster

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SAIL: Staff costs mar growth
Oct 21, 2008

Performance summary
  • Topline of the company grows by 33.6% YoY and 35.3% YoY during 2QFY09 and 1HFY09 respectively, mainly on account of higher sales volumes of value added products.

  • EBITDA margins decline by 410 bps to 24.6% compared to same quarter last year, led by staff expenses (as percentage of sales).

  • Bottomline grows by 18.2% YoY during the quarter, higher than the operating profits growth led mainly by increase in other income.

  • For the half year ended Sept 30, 2008, the company’s bottomline has reported a 19% jump on the back of 35% YoY growth in topline



(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 91,635 122,386 33.6% 172,030 232,680 35.3%
Expenditure 65,344 92,271 41.2% 121,908 174,829 43.4%
Operating profit (EBDITA) 26,291 30,115 14.5% 50,122 57,851 15.4%
EBDITA margin (%) 28.7% 24.6%   29.1% 24.9%  
Other income 3,043 4,224 38.8% 6,112 8,150 33.3%
Interest (net) 594 475 -19.9% 1,390 1,043 -25.0%
Depreciation 3,012 3,194 6.0% 6,024 6,359 5.6%
Profit before tax 25,728 30,670 19.2% 48,820 58,598 20.0%
Tax 8,726 10,574 21.2% 16,566 20,150 21.6%
Profit after tax/(loss) 17,002 20,096 18.2% 32,254 38,448 19.2%
Net profit margin (%) 18.6% 16.4%   18.7% 16.5%  
No. of shares (m) 4,130.4 4,130.4   4,130.4 4,130.4  
Diluted earnings per share (Rs)*         19.7  
Price to earnings ratio (x)**         5.4  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 2QFY09f
  • The company registered a robust topline growth of 33.6% YoY mainly on account of increased sales of value added products, wherein it recorded increase of 123% in heavy structurals, 54% in pipes and 29%in TMT rounds backed by increased production of value added steel by 33% as compared to corresponding period last year.

    Cost break-up

    (Rs m) 2QFY08 2QFY09 Change
    Raw materials 30,198 33,891 12.2%
    % sales 33.0% 27.7%  
    Staff cost 14,911 31,033 108.1%
    % sales 16.3% 25.4%  
    Consumption of stores and spares 6,778 8,423 24.3%
    % sales 7.4% 6.9%  
    Power and fuel 6,889 8,578 24.5%
    % sales 7.5% 7.0%  
    Other expenses 6,567 10,346 57.5%
    % sales 7.2% 8.5%  

  • On the operating front, the operating profits showed a growth of 14.5% on YoY basis. However the margins have shown a decline of 410 bps. This can be owed to the mounting cost pressure, where staff costs increased by 108% and other expenses by 58% over corresponding quarter last year. This resulted in a 41% increase in operating expenses. Had the company not reduced its energy consumption and coke rate, the dent in margins would have been more.

  • The bottomline growth came in at 18.2% YoY, higher than the operating profits mainly on account of increase in other income and reduced interest costs which were the result of robust cash flows generated by the company, which pared down the debt considerably and diverted higher amount of cash towards investments.

What to expect?
At the current price of Rs 106, the stock is trading at a multiple of 1.3 times its expected FY11 book value per share. The company’s performance has come better than our expectations mainly on account of superior realisations. However, we await details from the company’s concall scheduled for tomorrow and would revisit our numbers post the same.

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