SAIL Q2 PAT seen down 21% at Rs 870 cr

Steel Authority of India (SAIL) is expected to report a profit after tax of Rs 870 crore in the second quarter of FY12, a fall of 21% as compared to Rs 1,090.1 crore in the corresponding quarter of last fiscal.

EBITDA too is likely to go down 9% to Rs 1,351 crore from Rs 1,491.5 crore during the same period. EBITDA margin is expected to be at 11.9% versus 14.1% year-on-year.

Net sales are seen going up by 8% to Rs 11,450 crore in the quarter ended September FY12 versus Rs 10,602.88 crore in a year ago period.

On quarter-on-quarter basis, net sales are likely to go up by 6% and PAT is seen going up by 4%.

Factors in focus:

Realizations and Volumes:

SAIL will show an improvement in sequential performance due to higher sales volumes up 8-9% QoQ but flat volumes on YoY basis

Sales volumes are likely to come in at approximately 3 mt in Q2FY12

Realizations will be higher as the prices of both longs and flats were up between 8-9% YoY

But realisations will stay flat on a QoQ basis as price of longs were up 2-3% but price of flats corrected by 1%

EBITDA margins:

Iron ore spot prices averaged at USD 175/t in 2QFY12 but SAIL are 100% integrated on the iron ore front and stand protected

EBITDA to increase on a QoQ on the back of higher sales volumes but will face pressure on a YoY basis due to high coal prices

However margins will contract due to lagged effects of higher coking coal costs

Being a Government run steel maker, employee costs constituent nearly 20% of its costs of production

In Q1FY12 SAIL suffered a Rs 580 crore additional hit to their margins owing to higher coking coal prices

EBITDA margins will come in better sequentially as Q1FY12 margins were impacted by higher staff costs

In Q1FY12 margins were dented due to a 1-time expense of Rs 239 crore on payment of leave travel concession (LTC) for a block of four years

Future outlook:

Entire benefits of Rs 720 billion capex will be seen only in FY15

Next significant capacity addition i.e. new 2mtpa blast furnace at ISP, Burnpur is likely to get commissioned by March 2012

Timely execution of ongoing projects will help deliver volume growth