SAIL - Q2FY12 result analysis

SAIL, India’s largest steel producing company, announced its results for the September quarter of FY12.  The net sales of the company stood at Rs 10836.68 cr, higher by 2.2% from its sales in the previous year’s corresponding quarter. The marginal growth in sales was majorly on the back of a 7% increase in sales volume to 3 mn tonnes in Q2 FY12, due to higher production. However, the sales growth could have been higher if the realisations wouldn’t have come down by 5%.

On the operating side, the EBITDA margin declined by 360 bps to 12.1% due to higher raw material and power/fuel prices, up by 15% and 28% respectively. Also, the EBITDA per tonne during the quarter stood at Rs 4421, lower by 20% as compared to that in the previous year’s corresponding quarter, which was at Rs 5507.

During the quarter, steel industries were beaten up by high input costs and lower demand, which impacted the topline and the bottomline of SAIL as well. The major hit came on the bottomline of the company, which declined by 54.6% to Rs 127 cr, mainly because of higher forex translation (unrealised) losses of Rs 508 cr due to adverse movement of the rupee against the dollar.

On the outlook of the company, the chairman said that they are hopeful of the demand picking up in the coming months, with projects likely to take off in several major sectors, particularly railways, roads, power, etc. This, along with the falling prices of input raw material prices, should help the domestic steel industry combat the current challenges.

The World Steel Association has lowered the growth projection for FY12, following the grim outlook in the US and debt issues in the EU. After continues rate hikes by the RBI, this seems to be the case in India as well, and we believe that the forthcoming 6 months will remain challenging for the demand side.  However, the current situation on the input cost side seems much better than before, as the prices for coking coal and iron ore have fallen internationally due to a slowdown in demand across the world. Therefore, SAIL may see some relief on the margins in the coming quarter, though the demand growth may remain slow.

The stock closed at Rs 111.05, and was down up 1.16% after falling 3.6% on the NSE after the results announcement. So far, it has touched a high of Rs 111.60 and a low of Rs 109.55 in today’s trade.