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SAIL 4QFY2012 performance highlights and results update

June 5, 2012, Tuesday, 12:01 GMT | 07:01 EST | 15:31 IST | 18:01 SGT
Contributed by Angel Broking

For 4QFY2012, SAIL reported higher-than-expected top line, while its PAT came in below our expectations due to lower-than-expected raw-material costs. We recommend Neutral on the stock.

Higher realization leads to increased net sales: During 4QFY2012, SAIL’s net sales increased by 12.2% yoy to Rs.13,397cr (above our estimate of Rs.12,183cr) mainly due to a 15.6% yoy increase in realization per tonne to Rs.40,598.

Higher operating cost dents SAIL’s EBITDA: Raw-material cost and other expenditure during the quarter increased by 27.1% and 38.6% yoy to Rs.6,866 and Rs.1,979cr, respectively. Power and fuel cost increased by 26.2% yoy to Rs.1,156cr. Hence, EBITDA dipped by 20.5% yoy to Rs.1,871cr and EBITDA margin contracted by 574bp yoy to 14.0% (in-line with our estimate of 14.0%). EBITDA/tonne decreased by 26.6% yoy and 13.3% qoq to Rs.5,670 in 4QFY2012.

Forex gain improves the bottom line: The company reported an exceptional item related to forex gain of Rs.725cr in 4QFY2012, compared to exceptional gain of Rs.34cr in 4QFY2011. Hence, reported PAT increased by 3.0% yoy to Rs.1,577cr. However, excluding exceptional items, adjusted PAT declined by 43.1% yoy to Rs.852cr (significantly below our estimate of Rs.1,263cr).

Outlook and valuation: SAIL is expanding its saleable steel production capacity from 12.5mn tonnes to 20.2mn tonnes by FY2015. However, the company has reported delays and cost overruns in many of its expansion plans during the past one year. Moreover, the current rich valuation of 7.0x FY2014E EV/EBITDA discounts its anticipated volume growth over FY2012-15E. Hence, we recommend Neutral on the stock.