Sail: Results in line with expectations

For the December 2009 quarter, SAIL saw net sales at Rs 9,880 crore up 11 per cent year-on-year, in line with market expectations, even as seasonal impact saw sales dip 2 per cent sequentially. The company’s steel sales was at 2.9 million tonnes (mt) in the recently concluded quarter against 3 mt in the September 2009 quarter and 2.4 mt in December 2008 quarter.

Operating margins more than doubled to 26.59 per cent year-on-year helped by lower input costs. For instance, imported coking coal costs fell 35 per cent to Rs 3,820 crore. Realisations were steady even as the company announced two price cuts in flat products of Rs 750-1,500 per tonne and Rs 500 per tonne midway through quarter. Long product prices started moving up only towards the end of the quarter. Consequently, Ebitda margins dipped 291 basis points (bps) sequentially.

Helped by China’s production global steel output has grown 30 per cent y-o-y in the December 2009 quarter and is clearly above the growth in demand according to analysts. China’s robust production has titled the balance towards miners over steel producers, say experts, and rising input costs (for both iron ore and coking coal) and falling profitability is inevitable, unless producers raise prices in line with cost increases.

SAIL may spend as much as Rs 13,000 crore to expand capacity in 2010-11 compared with an estimated Rs 10,350 crore this financial year. It also plans to sell 10 per cent of its equity through a public offer to raise as much as Rs 5,000 crore, based on current prices. The stock was down over 4 per cent post results on 27 January, but made up some of the lost ground. At Rs 220, up 1.7 per cent from Wednesday’s close, it is valued at a P/E of about 15.3 times its trailing 12 month EPS.