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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
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this
document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to
arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved),
and should consult their own advisors to determine the merits and risks of such an investment.
Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are
inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company
may or may not subscribe to all the views expressed within.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as
opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true,
and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we
cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel
Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other
reasons that prevent us from doing so.
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in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past.
Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the
use of this information.
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
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
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:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
Angel Capital & Debt Market Ltd: INB 231279838 / NSE FNO: INF 231279838 / NSE Member code -12798 Angel Commodities Broking (P) Ltd: MCX Member ID: 12685 / FMC Regn No: MCX / TCM /
CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
May 31, 2010 8
