Angel Broking neutral on Steel Authority of India

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Angel Broking neutral on Steel Authority of India

Angel Broking has maintained neutral rating on Steel Authority of India (SAIL) in its November 4, 2011 research report.

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Angel Broking has maintained neutral rating on Steel Authority of India (SAIL) in its November 4, 2011 research report.

"Steel Authority of India (SAIL) reported net sales of Rs 10,837cr (for 2QFY2012), slightly below our estimate of Rs 11,135cr. However, adjusted PAT at Rs 1,003cr was above our estimate of Rs 836cr. During 2QFY2012, net sales grew by 2.2% yoy to Rs 10,837cr (slightly below our estimate of Rs 11,135cr) mainly due to increased realization (up 8.7% yoy to Rs 38,023/tonne), partially offset by lower sales volume (down 5.9% yoy to 2.9mn tonnes). Power, fuel and staff costs dent SAIL's EBITDA: Despite 8.7% yoy growth in realization, EBITDA dipped by 13.9% yoy to Rs 1,327cr and EBITDA margin contracted by 230bp yoy to 12.2% mainly due to higher power and fuel (up 28.2% yoy) and staff costs (up 16.5% yoy). EBITDA/tonne stood at Rs 4,657 in 2QFY2012 compared to Rs 5,090 in 2QFY2011. Forex loss hits net profit: SAIL reported an exceptional item related to forex loss of Rs 509cr in 2QFY2012 compared to forex gain of Rs 153cr in 2QFY2011. Hence, net profit decreased by 54.6% yoy to Rs 495cr. However, excluding exceptional items, adjusted net profit grew by 7.0% yoy to Rs 1,003cr in 2QFY2012."

"SAIL is expected to increase its saleable steel production capacity from 12.5mn tonnes to 23.1mn tonnes by FY2015. Also, we expect SAIL's older loss-making plants to be modernized as part of its modernization program. However, the company has reported delays in its expansion plans. The stock is currently trading at a 9.1x and 6.4x FY2012 and FY2013 EV/EBITDA, respectively. Given the company's modest volume growth in the near term and fair valuations, we have a Neutral view on the stock," says Angel Broking research report.

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To read the full report click on the attachment