SAIL Steel-RU4QFY2010-310510 money.umakant.info Q2 2010 by icestar

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									                                                                                                4QFY2010 Result Update I Steel
                                                                                                                         May 31, 2010




  SAIL                                                                                  NEUTRAL
                                                                                        CMP                                     Rs206
  Performance Highlights                                                                Target Price                                -
  SAIL’s 4QFY2010 results were in line with our estimates. While revenues grew          Investment Period                           -
  by 1.8% yoy and 23.3% qoq to Rs11,955cr, EBITDA margins expanded by
  793bp yoy to 25.9% (flat on a qoq basis) on the back of lower raw material            Stock Info
  costs and consumption of stores. Consequently, Net income grew 40.2% yoy
                                                                                        Sector                                   Steel
  and 24.4% qoq to Rs2,085cr. We maintain our Neutral view on the stock as it
  is trading at rich valuations of 8.1x FY2011E and 7.7x FY2012E EV/EBITDA.             Market Cap (Rs cr)                     84,983

                                                                                        Beta                                      1.4
  Another quarter of stellar performance: SAIL’s 4QFY2010 revenues grew
  1.8% yoy and 23.3% qoq to Rs11,955cr. Sales volume declined 6.1% yoy to               52 WK High / Low                      259/139
  3.4mn tonnes, but were higher by 15.6% qoq. Average realisation increased
  8.4% yoy and 6.6% qoq to Rs35,162/tonne. Despite staff and power costs                Avg. Daily Volume                     1430365
  increasing by 22.5% yoy and 24.1% yoy respectively, EBITDA margins                    Face Value (Rs)                            10
  expanded by 793bp yoy to 25.9% mainly driven by: a) 19% drop in raw
  material cost, and b) 14.2% fall in consumption of stores. This resulted in           BSE Sensex                             16,945
  EBITDA growing by 46.8% yoy to Rs3,097cr. Net interest income fell by 44.1%           Nifty                                   5,086
  yoy and 5.5% qoq to Rs276cr. Consequently, Net income increased by 40.2%
  yoy to Rs2,085cr in line with our estimate of Rs2,037cr.                              Reuters Code                          SAIL.BO

                                                                                        Bloomberg Code                        SAIL@IN
  Outlook and Valuation: At the CMP of Rs206, the stock is trading at 8.1x
  FY2011E and 7.7x FY2012E EV/EBITDA, respectively. Going ahead, we                     Shareholding Pattern (%)
  believe SAIL will benefit from strong domestic demand. However, as the
  benefits of capacity expansion are expected post FY2012E, we believe that the         Promoters                                85.8
  near-term sector positives are priced in. Thus, we maintain a Neutral on the          MF/Banks/Indian FIs                       7.9
  stock. Further, plans of follow-on public offer in the near future could limit the
  upside from current levels.                                                           FII/NRIs/OCBs                             4.5

                                                                                        Indian Public                             1.3
  Key risks to our call: 1) Delays in expansion projects; 2) Higher than expected
  increase in coking coal prices.                                                       Abs. (%)            3m         1yr        3yr

                                                                                        Sensex              3.1        15.9       16.5

   Key Financials                                                                       SAIL              (5.8)        19.0       46.9
   Y/E March (Rs cr)                 FY2009       FY2010E         FY2011E    FY2012E

   Net Sales                         43,134         40,551         48,247     52,932
   % chg                                7.8            (6.0)         19.0        9.7
   Net Profit                         5,566          6,754          6,694      6,887
   % chg                              (26.1)           21.3          (0.9)       2.9
   EPS (Rs)                            13.5            16.4          16.2       16.7
   OPM (%)                             19.5            24.5          22.1       22.5
   P/E (x)                             15.3            12.6          12.7       12.3
                                                                                       Paresh Jain
   P/BV (x)                             3.1             2.6           2.2        1.9
                                                                                       Tel: 022 – 4040 3800 Ext: 348
   RoE (%)                             22.1            22.5          19.0       16.9   E-mail: pareshn.jain@angeltrade.com
   RoCE (%)                            22.3            20.9          18.0       16.8
   EV/Sales (x)                         1.8             1.9           1.8        1.7   Pooja Jain
                                                                                       Tel: 022 – 4040 3800 Ext: 311
   EV/EBITDA (x)                        9.0             7.9           8.1        7.7
                                                                                       E-mail: pooja.j@angeltrade.com
   Source: Company, Angel Research




                                                                                                                                        1
Please refer to important disclosures at the end of this report                          Sebi Registration No: INB 010996539
                                                                     SAIL I 4QFY2010 Result Update



               Exhibit 1: 4QFY2010 Performance
                (Rs cr)                  4QFY10       4QFY09     % yoy    FY2010     FY2009    % yoy
                Net Sales                 11,955       11,739      1.8    40,551     43,134     (6.0)
                Raw Material               5,157        6,364    (19.0)   17,198     16,847      2.1
                % of Net sales              43.1         54.2                42.4       39.1
                Power & Fuel                 949          765     24.1     3,364      3,115      8.0
                % of Net sales                7.9          6.5                8.3        7.2
                Staff Cost                 1,638        1,337     22.5     5,417      8,402    (35.5)
                % of Net sales              13.7         11.4               13.4       19.5
                Other Expenditure            934          767     21.8     2,809      3,839    (26.8)
                % of Net sales               7.8          6.5                6.9        8.9
                Total Expenditure          9,133        9,835     (7.1)   31,362     35,223    (11.0)
                Operating Profit           2,823        1,904     48.3     9,189      7,911     16.2
                OPM (%)                     23.6         16.2               22.7       18.3
                Other Operating
                                                275       206     33.2       756        506     49.5
                Income
                EBIDTA                     3,097        2,110     46.8     9,945      8,417     18.2
                % of Net sales              25.9         18.0               24.5       19.5
                Net Interest
                                                276       495    (44.1)    1,459      1,574     (7.3)
                Expense/(Income)
                Depreciation                    338       330      2.6     1,337      1,285      4.1
                Other Income                     32        (3)        -       65         73    (11.3)
                Exceptional Items                0         16         -         0        16         -
                Profit before Tax          3,067        2,287     34.1    10,132      8,795     15.2
                % of Net sales              25.7         19.5               25.0       20.4
                Current Tax                  982          800     22.7     3,378      3,229      4.6
                % Tax rate                  32.0         35.0               33.3       36.7
                Profit After tax           2,085        1,487     40.2     6,754      5,566     21.3
                % of Net sales              17.4         12.7               16.7       12.9
                FDEPS (Rs)                    5.1          3.6    41.8      16.4       13.5     21.3
               Source: Company, Angel Research


               Exhibit 2: Quarterly Performance
                 (Rs/tonne of saleable steel)         4QFY10     4QFY09     % yoy    3QFY10    % qoq

                 Revenue                              35,162     32,428       8.4    32,983       6.6
                 Cost                                 26,861     27,170      (1.1)   24,831       8.2
                 Raw material cost                    14,673     17,269    (15.0)    11,739     25.0
                 Consumption of Stores                 1,829      1,976      (7.4)    2,165    (15.5)
                 Power and Fuel                        2,792      2,113      32.2     2,442     14.3
                 Staff cost                            4,818      3,693      30.5     5,344     (9.9)
                 Other Expenditure                     2,748      2,119      29.7     3,140    (12.5)
                 EBITDA (Rs)                           9,109      5,828      56.3     8,770       3.9
                 EBITDA (US $)                           198        117      69.5       188       5.5
               Source: Company, Angel Research




May 31, 2010                                                                                            2
                                                                             SAIL I 4QFY2010 Result Update


               Key Highlights of Concall

                             During 4QFY2010, Semis, as a % of total Sales, stood at 9%, while longs
                              constituted 31% and flat products accounted for 60% of the product mix.

                             Nearly 0.2-0.25mn tonnes of production were lost during the quarter on
                              account of the fire in the Bhillai steel plant.

                             Power and fuel costs increased 24.1% yoy and 32.2% qoq to Rs949cr, as it
                              included provisions of Rs120cr on account of fuel surcharge.

                             The company is targeting manpower reduction of 4,000 employees in
                              FY2011E and expects to bring the total headcount to 100,000 by FY2013E

                             In April and May 2010, the company cut the prices of long products by
                              Rs1,500-2,000/tonne and flat products by Rs1,000-1,500/tonne citing
                              de-stocking activity in the market.

                             The company has outlined capex of Rs12,254cr and Rs13,500cr for
                              FY2011E and FY2012E, respectively.


               Outlook and Valuation

               At the CMP of Rs206, the stock is trading at 8.1x FY2011E and 7.7x FY2012E
               EV/EBITDA, respectively. Going ahead, we believe SAIL will benefit from strong
               domestic demand. But, as the benefits of capacity expansion are expected post
               FY2012E, we believe that the near-term sector positives are priced in. Thus, we
               maintain a Neutral on the stock. Further, plans of follow-on public offer in the near
               future could limit the upside from current levels.

               Key risks to our call: 1) Delays in expansion projects; 2) Higher than expected
               increase in coking coal prices.


               Exhibit 3: 1-year forward EV/EBITDA

                          180,000
                          160,000
                                                                                                             14x
                          140,000
                          120,000                                                                            11x
                          100,000
                (Rs cr)




                                                                                                              8x
                           80,000
                           60,000                                                                             5x
                           40,000
                           20,000                                                                             2x

                               0
                                Apr-02   Apr-03   Apr-04   Apr-05   Apr-06    Apr-07   Apr-08   Apr-09   Apr-10

               Source: Bloomberg, Angel Research




May 31, 2010                                                                                                      3
                                                                               SAIL I 4QFY2010 Result Update


               Exhibit 4: 1-year forward P/E

                        400

                        350
                                                                                                                 20x
                        300

                        250                                                                                      15x




               (Rs)
                        200
                                                                                                                 10x
                        150

                        100
                                                                                                                  5x
                         50

                          0
                          Apr-02       Apr-03    Apr-04    Apr-05    Apr-06    Apr-07    Apr-08    Apr-09    Apr-10

               Source: Bloomberg, Angel Research

               Exhibit 5: 1-year forward P/BV band
                        400
                                                                                                                      4x
                        350

                        300                                                                                           3x
                        250
                 (Rs)




                        200                                                                                           2x

                        150

                        100                                                                                           1x

                         50

                          0
                              Apr-02    Apr-03    Apr-04    Apr-05    Apr-06    Apr-07    Apr-08    Apr-09    Apr-10

               Source: Bloomberg, Angel Research




May 31, 2010                                                                                                          4
                                                                           SAIL I 4QFY2010 Result Update


               Profit & Loss Statement                                                                   (Rs cr)
                Y/E March                             FY2007   FY2008   FY2009    FY2010    FY2011E    FY2012E
                Gross sales                           39,189   45,555   48,665    44,607     53,071     58,226
                Less: Excise duty                      5,266    6,047    5,531     4,055      4,825      5,293
                Net Sales                             33,923   39,508   43,134    40,551     48,247     52,932
                Other operating income                  410      491      506       756        500        500
                Total operating income                34,333   39,999   43,640    41,307     48,747     53,432
                % chg                                   21.5     16.5      9.1      (5.3)      18.0        9.6
                Total Expenditure                     24,899   28,875   35,223    31,362     38,083     41,528
                Net Raw Materials                     13,030   13,624   16,847    17,198     20,692     22,842
                Other Mfg costs                        5,555    6,119    6,136     5,938      6,272      6,881
                Personnel                              5,087    7,919    8,402     5,417      7,500      8,100
                Other                                  1,227    1,212    3,839     2,809      3,619      3,705
                EBITDA                                 9,434   11,124    8,417     9,945     10,664     11,904
                % chg                                   48.9     17.9    (24.3)     18.2        7.2       11.6
                (% of Net Sales)                        27.8     28.2     19.5      24.5       22.1       22.5
                Depreciation                           1,211    1,235    1,285     1,337      1,397      1,631
                EBIT                                   8,222    9,889    7,132     8,608      9,267     10,273
                % chg                                   60.4     20.3    (27.9)     20.7        7.7       10.9
                (% of Net Sales)                        23.9     24.7     16.5      21.2       19.2       19.4
                Interest Expenses                       332      251      255       402       1,072      1,351
                Other Income                           1,532    1,831    1,902     1,926      1,947      1,577
                (% of PBT)                              16.3     16.0     21.7      19.0       19.2       15.0
                Share in profit of Associates              -        -         -         -          -          -
                Recurring PBT                          9,423   11,469    8,779    10,132     10,142     10,498
                % chg                                   65.1     21.7    (23.5)     15.4        0.1        3.5
                Extraordinary Inc/(Expense)                -        -     16.0          -          -          -
                PBT (reported)                         9,423   11,469    8,795    10,132     10,142     10,498
                Tax                                    3,220    3,932    3,229     3,378      3,448      3,611
                (% of PBT)                              34.2     34.3     36.7      33.3       34.0       34.4
                PAT (reported)                         6,202    7,537    5,566     6,754      6,694      6,887
                Add: Share of earnings of associate        -        -         -         -          -          -
                Less: Minority interest (MI)               -        -         -         -          -          -
                Extraordinary Expense/(Inc.)               -        -         -         -          -          -
                PAT after MI (reported)                6,202    7,537    5,566     6,754      6,694      6,887
                ADJ. PAT                               6,202    7,537    5,566     6,754      6,694      6,887
                % chg                                   54.6     21.5    (26.1)     21.3       (0.9)       2.9
                (% of Net Sales)                        18.1     18.8     12.9      16.7       13.9       13.0
                Basic EPS (Rs)                          15.0     18.2     13.5      16.4       16.2       16.7
                Fully Diluted EPS (Rs)                  15.0     18.2     13.5      16.4       16.2       16.7
                % chg                                   54.6     21.5    (26.1)     21.3       (0.9)       2.9




May 31, 2010                                                                                                  5
                                                                                  SAIL I 4QFY2010 Result Update


               Balance Sheet                                                                                          (Rs cr)
                Y/E March                             FY2007        FY2008     FY2009    FY2010       FY2011E       FY2012E
                SOURCES OF FUNDS
                Equity Share Capital                   4,130          4,130     4,130     4,130         4,130         4,130
                Reserves & Surplus                    13,183        18,933     23,244    28,406        33,845        39,476
                Shareholders Funds                    17,313        23,064     27,375    32,536        37,975        43,607
                Share Warrants                                 -           -         -        -             -              -
                Minority Interest                              -           -         -        -             -              -
                Total Loans                            4,181          3,045     7,539    12,348        16,989        19,706
                Deferred Tax Liability                 1,413          1,569     1,332     1,414         1,759         2,120
                Total Liabilities                     22,906        27,677     36,246    46,298        56,722        65,432
                APPLICATION OF FUNDS
                Gross Block                           29,913        30,923     32,156    34,031        37,606        47,481
                Less: Acc. Depreciation               18,315        19,351     20,637    21,974        23,371        25,002
                Net Block                             11,598        11,571     11,519    12,057        14,235        22,479
                Capital Work-in-Progress               1,236          2,390     6,390    14,390        23,190        25,190
                Goodwill                                       -           -         -        -             -              -
                Investments                              514            538       538      538            538           538
                Current Assets                        20,379        26,318     33,340    35,159        34,838        34,029
                Cash                                   9,610        13,759     16,959    18,874        15,843        12,960
                Loans & Advances                       1,650          2,380     2,380     2,380         2,380         2,380
                Other                                  9,119        10,178     14,001    13,905        16,615        18,689
                Current liabilities                   10,949        13,199     15,600    15,905        16,138        16,863
                Net Current Assets                     9,430        13,119     17,739    19,253        18,700        17,166
                Mis. Exp. not written off                129             59        59        59            59            59
                Total Assets                          22,906        27,677     36,246    46,298        56,722        65,432

               Cash Flow                                                                                              (Rs cr)
                Y/E March                            FY2007         FY2008     FY2009    FY2010E       FY2011E       FY2012E
                Profit before tax                     9,423         11,469      8,795     10,132        10,142        10,498
                Depreciation                          1,237           1,234     1,285      1,337         1,397         1,631
                Change in Working Capital             (976)           (743)    (1,807)       401        (2,478)       (1,349)
                Less: Other income                    (623)             201         0             -             -              -
                Direct taxes paid                     3,427           3,783     3,465      3,296         3,104         3,250
                Cash Flow from Operations             5,633           8,378     4,808      8,574         5,958         7,530
                (Inc.)/ Dec. in Fixed Assets         (1,091)        (2,199)    (5,233)    (9,875)      (12,375)      (11,875)
                (Inc.)/ Dec. in Investments           (200)             (20)        0             -             -              -
                (Inc.)/ Dec. in loans and advances         -               -         -            -             -              -
                Other income                          (703)         (1,079)         0             -             -              -
                Cash Flow from Investing              (588)         (1,140)    (5,233)    (9,875)      (12,375)      (11,875)
                Issue of Equity                           2               1         0             0             -              -
                Inc./(Dec.) in loans                      5        (1,112.4)    4,494    4,808.7       4,641.1       2,716.8
                Dividend Paid (Incl. Tax)             1,107           1,643       869      1,593         1,255         1,255
                Others                                  509             334         0             -             -              -
                Cash Flow from Financing             (1,608)        (3,089)     3,625      3,216         3,386         1,462
                Inc./(Dec.) in Cash                   3,437           4,150     3,200      1,915        (3,031)       (2,883)
                Opening Cash balances                 6,173           9,610    13,759     16,959        18,874        15,843
                Closing Cash balances                 9,610         13,759     16,959     18,874        15,843        12,960




May 31, 2010                                                                                                               6
                                                                      SAIL I 4QFY2010 Result Update


               Key Ratios
                Y/E March                      FY2007    FY2008    FY2009    FY2010E    FY2011E   FY2012E
                Valuation Ratio (x)
                P/E (on FDEPS)                   13.7      11.3      15.3       12.6       12.7      12.3
                P/CEPS                           11.6       9.8      12.4       10.5       10.5      10.0
                P/BV                              4.9       3.7       3.1        2.6        2.2       1.9
                Dividend yield (%)                1.5       1.8       1.3        1.6        1.3       1.3
                EV/Sales                          2.3       1.9       1.8        1.9        1.8       1.7
                EV/EBITDA                         8.4       6.7       9.0        7.9        8.1       7.7
                EV/Total Assets                   3.5       2.7       2.1        1.7        1.5       1.4
                Per Share Data (Rs)
                EPS (Basic)                      15.0      18.2      13.5       16.4       16.2      16.7
                EPS (fully diluted)              15.0      18.2      13.5       16.4       16.2      16.7
                Cash EPS                         17.8      21.1      16.6       19.6       19.6      20.6
                DPS                               3.1       3.7       2.6        3.3        2.6       2.6
                Book Value                       41.9      55.8      66.3       78.8       91.9     105.6
                Dupont Analysis
                EBIT margin                      23.9      24.7      16.5       21.2       19.2      19.4
                Tax retention ratio (%)          65.8      65.7      63.3       66.7       66.0      65.6
                Asset turnover (x)                2.7       2.9       2.6        1.8        1.4       1.1
                RoIC (Post-tax)                  42.4      47.8      27.5       25.0       18.1      14.6
                Cost of Debt (Post Tax)           5.2       4.6       3.1        4.5        4.8       4.8
                Leverage (x)                         -         -         -          -       0.0       0.2
                Operating RoE                    42.4      47.8      27.5       25.0       18.5      16.1
                Returns (%)
                RoCE (Pre-tax)                   39.8      39.1      22.3       20.9       18.0      16.8
                Angel RoIC (Pre-tax)             69.9      83.8      58.4       66.4       60.3      45.7
                RoE                              41.5      37.3      22.1       22.5       19.0      16.9
                Turnover ratios (x)
                Asset Turnover (Gross Block)      1.2       1.3       1.4        1.2        1.4       1.3
                Inventory (days)                 186       184       195        195        195       190
                Receivables (days)                 28        40        40         40        45        40
                Payables (days)                    80        70        70         70        75        70
                Working capital cycle (days)       64        61        74         94        86        90
                Solvency ratios (x)
                Net debt to equity               (0.3)     (0.5)     (0.3)      (0.2)       0.0       0.2
                Net debt to EBITDA               (0.6)     (1.0)     (1.1)      (0.7)       0.1       0.6
                Interest Coverage                24.8      39.4      28.0       21.4        8.6       7.6




May 31, 2010                                                                                           7
                                                                                                                                         SAIL I 4QFY2010 Result Update


Research Team Tel: 022 - 4040 3800                                          E-mail: research@angeltrade.com                                         Website: ww.angeltrade.com


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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).




 Disclosure of Interest Statement                                                                            SAIL
 1. Analyst ownership of the stock                                                                            No
 2. Angel and its Group companies ownership of the stock                                                      No
 3. Angel and its Group companies’ Directors ownership of the stock                                           No
 4. Broking relationship with company covered                                                                 No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies




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                                                                    Tel: (022) 3952 4568 / 4040 3800



    Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
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May 31, 2010                                                                                                                                                                                8

								
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