2QFY2016 Result Update | Metals/Mining
November 18, 2015
Steel Authority of India
NEUTRAL
CMP
`45
Performance Highlights
Target Price
-
Standalone (` cr)
2QFY16
2QFY15
yoy% 1QFY16 qoq%
Investment Period
-
Net revenue
9,113
11,566
(21.2)
9,384
(2.9)
EBITDA
(1,048)
1,336
-
(82)
-
Stock Info
Sector
Metals/Mining
Margin (%)
(11.5)
11.6
-
(0.9)
-
Market Cap (` cr)
18,773
Reported PAT
(1,056)
649
-
(322)
-
Net Debt (` cr)
29,943
Source: Company, Angel Research
Beta
1.3
Steel Authority of India (Sail) reported a weak set of numbers for 2QFY2016 with
52 Week High / Low
91 / 45
a loss at the operating and net profit level. While volumes were in line with
Avg. Daily Volume
14,02,713
expectations at 2.74MT (estimate 2.75MT), blended realisations declined 15% yoy
Face Value (`)
10
to `37,388/tonne as against our expectation of a 12% decline. Owing to a
BSE Sensex
25,864
higher-than-expected drop in realisations, net sales declined 21% yoy to `9,113,
Nifty
7,838
3% below our estimate.
Reuters Code
SAIL.BO
Operating expenses came in much higher than expectations, resulting in an
Bloomberg Code
SAIL IN
EBITDA loss of `1,048cr as against our expectations of an EBITDA loss of `170cr.
Material costs came in much ahead of our expectations at `4,065cr (44.6% of net
sales) as against our expectations of `3,713cr (39.5% of revenues). Other
Shareholding Pattern (%)
expenses too were higher than expectations, resulting in a higher than expected
Promoters
75.0
EBITDA loss. Lower than expected depreciation and finance expenses and a
MF / Banks / Indian Fls
15.7
higher than expected deferred tax credit resulted in a net loss of `1,056cr, nearly
FII / NRIs / OCBs
5.6
at par with the loss at the EBITDA level, as against our expectations of a net loss
Indian Public / Others
3.8
of `623cr.
Outlook and valuation
Abs. (%)
3m 1yr
3yr
The stock is currently trading at a P/BV of 0.5x and 0.6x its FY2016E and
Sensex
(7.2)
(8.2)
41.3
FY2017E book value, respectively. Given the weak outlook on steel prices and
SAIL
(20.8)
(46.8)
(42.7)
with the company already in the red at the operating level, we expect tough times
to continue for the stock. The capacity expansion coupled with negative cash flows
3-year price chart
will also result in a significant worsening in leverage ratios. We retain our Neutral
120
view on the stock.
100
80
Key financials (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
60
40
Net sales
44,477
46,468
45,472
36,487
34,072
20
% chg
(3.3)
4.5
(2.1)
(19.8)
(6.6)
0
Adj. net profit
2,517
1,446
2,247
(4,207)
(6,109)
% chg
(34.9)
(42.6)
55.4
(287.2)
45.2
Adj. EPS (`)
6.1
3.5
5.4
(10.2)
(14.8)
Source: Company, Angel Research
OPM (%)
11.2
9.0
11.0
(7.7)
(12.4)
P/E (x)
7.5
13.0
8.4
(4.5)
(3.1)
P/BV (x)
0.5
0.4
0.4
0.5
0.6
RoE (%)
5.7
6.2
4.9
(10.1)
(17.2)
RoCE (%)
5.7
3.6
4.4
(6.2)
(8.6)
Rahul Dholam
EV/Sales (x)
0.8
0.9
1.0
1.5
1.8
Tel: 022- 3935 7800 Ext: 6847
EV/EBIDTA
7.4
9.6
9.0
(19.1)
(15.1)
[email protected]
Source: Company, Angel Research; Note: CMP as of November 17, 2015
Please refer to important disclosures at the end of this report
1
Steel Authority of India | 2QFY2016 Result Update
Exhibit 1: 2QFY2016 performance (Standalone)
(` cr)
2QFY16
2QFY15
yoy%
1QFY16
qoq%
FY2015
FY2014
yoy%
Net sales
9,113
11,566
(21.2)
9,384
(2.9)
45,472
46,468
(2.1)
Other operating income
144
113
27.3
119
20.7
480
470
2.2
Total Revenue
9,257
11,679
(20.7)
9,503
(2.6)
45,952
46,938
(2.1)
Raw material
4,065
4,310
(5.7)
3,671
10.7
17,812
20,868
(14.6)
% of net sales
44.6
37.3
39.1
39.2
44.9
Employee Cost
2,417
2,365
2.2
2,417
(0.0)
9,866
9,708
1.6
% of net sales
26.5
20.4
25.8
21.7
20.9
Power & Fuel cost
1,395
1,475
(5.4)
1,347
3.6
4,229
3,731
13.4
% of net sales
15.3
12.8
14.4
9.3
8.0
Other expenditure
2,429
2,193
10.8
2,150
13.0
9,057
8,434
7.4
% of net sales
26.7
19.0
22.9
19.9
18.1
Total expenditure
10,305
10,342
(0.4)
9,584
7.5
40,965
42,741
(4.2)
% of net sales
113.1
89.4
102.1
90.1
92.0
EBITDA
(1,048)
1,336
-
(82)
-
4,987
4,197
18.8
Margin (%)
(11.5)
11.6
(0.9)
11.0
9.0
194bp
Interest
467
356
31.4
443
5.5
1,535
1,047
46.6
Depreciation
436
392
11.3
426
2.3
1,883
1,836
2.6
Other income
131
162
(19.3)
174
(25.0)
983
826
19.0
Exceptional items
0
0
0
(89)
1,206
Profit before tax
(1,821)
751
(777)
2,464
3,346
(43.7)
% of net sales
(20.0)
6.5
(8.3)
5.4
7.2
Tax
(765)
101
(455)
306
693
(55.9)
% of PBT
42.0
13.5
58.6
12.4
20.7
Adj. PAT
(1,056)
649
(322)
2,158
2,652
(18.6)
Source: Company, Angel Research
Exhibit 2: Standalone - 2QFY2016 Actual vs. estimates
(` cr)
Actual
Estimates
Variation (%)
Net sales
9,113
9,392
(3.0)
EBITDA
(1,048)
(170)
-
EBITDA margin (%)
(11.5)
(1.8)
(9.7pp)
Net profit
(1,056)
(623)
-
Source: Company, Angel Research
Result highlights
Volumes in-line; Weak realisations hurt revenue
Sail reported a weak set of numbers for 2QFY2016 with a loss at the operating
and net level. While volumes were in line with our expectations at 2.74MT
(estimate 2.75MT), blended realisations declined 15% yoy to `37,388/tonne as
against our expectation of a 12% decline. Led by the higher than expected drop in
realisations, net sales declined 21% yoy to `9,113cr, 3% below our estimate.
November 18, 2015
2
Steel Authority of India | 2QFY2016 Result Update
Exhibit 3: Production and Off-take remain stable
Exhibit 4: :Lower realisations impact revenue
4.0
14,000
15
3.5
12,000
10
3.0
5
10,000
2.5
0
8,000
2.0
(5)
6,000
1.5
(10)
4,000
1.0
(15)
0.5
2,000
(20)
0.0
0
(25)
Saleable Steel Volumes (MT)
Saleable Steel Production (MT)
Revenue (` cr)
yoy change (%)
Source: Company, Angel Research
Source: Company, Angel Research
Operating expenses came in much higher than expectations resulting in an EBITDA
loss of `1,048cr as against our expectation of an EBITDA loss of `170cr. Material
costs came in much ahead of our expectation at `4,065cr (44.6% of net sales) as
against our expectations of `3,713cr (39.5% of revenues). Other expenses too
were higher than expectations resulting in an higher than expected EBITDA loss.
Lower than expected depreciation and finance expenses and a higher than
expected deferred tax credit resulted in a net loss of `1,056cr for the quarter,
nearly at par with the loss at the EBITDA level, as against our expectations of a net
loss of `623cr.
Exhibit 5: Realisation / EBITDA (`/ Tonne)
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
Realisation
43,697
38,033
42,388
43,189
45,346
44,143
42,976
40,779
39,228
37,388
EBITDA
3,251
2,610
3,888
3,493
4,094
4,561
4,224
2,943
(304)
(3,827)
Source: Company, Angel Research
Exhibit 6: High material cost results in EBITDA loss
Exhibit 7: Net profit too declines sharply
1,500
11.4
15.0
1,500
15.0
10.2
10.0
10.9
10.2
9.0
8.3
8.0
1,000
6.8
10.0
1,000
10.0
5.6
5.2
4.4
4.6
4.7
3.4
500
5.0
500
5.0
2.9
(0.9)
-
0.0
-
0.0
(3.4)
(500)
(5.0)
(500)
(5.0)
(1,000)
(10.0)
(1,000)
(10.0)
(11.3)
(11.4
)
(1,500)
(15.0)
(1,500)
(15.0)
EBITDA (` cr)
Margin (%)
Net Profit (` cr)
Margin (%)
Source: Company, Angel Research
Source: Company, Angel Research
November 18, 2015
3
Steel Authority of India | 2QFY2016 Result Update
Investment arguments
Outlook for steel prices continues to remain negative
Steel prices continue to remain under pressure led by Chinese exports and
depreciation of the Russian Ruble. Demand continues to remain weak across the
world. The World Steel Association has forecasted steel demand to decline 1.7% in
CY2015 and increase marginally
(0.7%) in CY2016. Chinese demand is
forecasted to fall by 3.5% and 2% in CY2015 and CY2016 respectively. Global
supply of iron ore also continues to remain strong, with iron ore majors continuing
to increase production. We therefore expect prices on the raw material side to also
remain under pressure resulting in downward pressure on product prices.
Capacity expansion to add pressure in the near term
Sail is expanding its crude steel capacity from 13.9MT at the end of FY2015 to
21.4MT by FY2017. The company has incurred ~63% of the capex for the
ongoing expansion projects and expects to incur a total capex of `6,500cr in
FY2016. We expect Sail to benefit from this additional capacity over the long term
in terms of gaining market share and improving its product mix. However, given
the pressure from imports currently and the weak outlook on steel prices, we
expect cash flow to remain negative, led by a gradual ramp up in utilisation of this
additional capacity. The debt equity ratio for the company has already inched up
to 0.8x at the end of 2QFY2016 from 0.4x at the end of FY2012. Led by the
strong capex and negative cash flow, we expect the net debt to EBITDA ratio to
increase to 1.25x in FY2017.
November 18, 2015
4
Steel Authority of India | 2QFY2016 Result Update
Outlook and valuation
The stock is currently trading at a P/B of 0.5x and 0.6x its FY2016E and FY2017E
book value, respectively. Given the weak outlook on steel prices and with the
company already in the red at the operating level, we expect tough times to
continue for the stock. We retain our Neutral view on the stock.
Company background
Steel Authority of India Ltd is one of the largest steel-making company in India and
one of the seven Maharatnas of the country’s central public sector enterprises. SAIL
produces iron and steel at five integrated plants and three special steel plants,
located principally in the eastern and central regions of India and situated close to
domestic sources of raw materials. The company has a strong product mix that
includes flat products, such as HR coils & plates, CR coils, pipes and electric sheets,
and long products, such as TMT bars and wire rods. It also manufactures long
rails, blooms, billets, slabs, channels, joists, angles, forged alloy and special steel
products, among others.
November 18, 2015
5
Steel Authority of India | 2QFY2016 Result Update
Profit & loss statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E
FY2017E
Net Sales
44,477
46,468
45,472
36,487
34,072
Other operating income
497
470
480
486
477
Total operating income
44,975
46,938
45,952
36,973
34,549
% chg
(3.6)
4.4
(2.1)
(19.5)
(6.6)
Total Expenditure
40,004
42,741
40,965
39,797
38,770
Net Raw Materials
19,951
20,868
17,812
15,658
15,332
Employee Expenses
8,756
9,708
9,866
9,451
9,029
Power & Fuel
3,669
3,731
4,229
5,460
5,281
Other
7,628.0
8,433.8
9,057.1
9,227.4
9,127.9
EBITDA
4,970
4,197
4,987
(2,824)
(4,222)
% chg
(22.4)
(15.6)
18.8
(156.6)
49.5
(% of Net Sales)
11.2
9.0
11.0
(7.7)
(12.4)
Depreciation& Amortisation
1,527
1,836
1,883
1,799
2,182
EBIT
3,444
2,361
3,104
(4,623)
(6,404)
% chg
(27.1)
(31.4)
31.5
(248.9)
38.5
(% of Net Sales)
7.7
5.1
6.8
(12.7)
(18.8)
Interest & other Charges
846
1,047
1,535
1,882
2,253
Other Income
1,051
826
983
556
511
Recurring PBT
3,649
2,140
2,553
(5,949)
(8,146)
% chg
(34.3)
(41.4)
19.3
(333.0)
36.9
Extraordinary Inc/(Expense)
(188)
1,206
(89)
-
-
PBT (reported)
3,460
3,346
2,464
(5,949)
(8,146)
Tax
1,131
693
306
(1,742)
(2,036)
(% of PBT)
32.7
20.7
12.4
29.3
25.0
Reported PAT
2,329
2,652
2,158
(4,207)
(6,109)
Adjusted PAT
2,517
1,446
2,247
(4,207)
(6,109)
% chg
(34.9)
(42.6)
55.4
(287.2)
45.2
(% of Net Sales)
5.7
3.1
4.9
(11.5)
(17.9)
November 18, 2015
6
Steel Authority of India | 2QFY2016 Result Update
Balance sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E FY2017E
SOURCES OF FUNDS
Equity Share Capital
4,131
4,131
4,131
4,131
4,131
Reserves & Surplus
37,514
39,154
40,072
34,862
27,748
Shareholders Funds
41,644
43,285
44,203
38,992
31,879
Total Loans
22,265
24,855
28,756
36,972
41,723
Deferred Tax Liability
1,900
2,207
2,566
824
(1,212)
Other Long term liabilities
5,609
5,477
5,310
5,495
5,620
Total Liabilities
71,418
75,823
80,835
82,283
78,011
APPLICATION OF FUNDS
Gross Block
45,134
56,512
67,824
82,488
92,070
Less: Acc. Depreciation
26,750
28,337
30,088
31,886
34,068
Net Block
18,384
28,175
37,736
50,601
58,001
Capital Work-in-Progress
36,161
33,959
29,328
19,164
9,982
Goodwill
0
0
0
0
0
Investments
73
91
454
454
454
Current Assets
28,380
27,395
28,959
28,067
21,906
Cash
4,177
3,142
2,606
1,891
(3,350)
Loans & Advances
16,166
15,355
17,943
19,044
18,295
Other
8,036
8,898
8,410
7,133
6,961
Current liabilities
15,086
18,045
20,484
20,941
17,368
Net Current Assets
13,293
9,350
8,475
7,126
4,538
Other Assets
3,507.3
4,248.2
4,842.3
4,938.0
5,035.7
Total Assets
71,418
75,823
80,835
82,283
78,011
November 18, 2015
7
Steel Authority of India | 2QFY2016 Result Update
Cash flow statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016E FY2017E
Profit before tax
3,460
3,346
2,464
(5,949)
(8,146)
Depreciation
1,530
1,720
1,902
1,799
2,182
Change in Working Capital
(2,236)
2,314
(1,798)
1,350
(1,901)
Others
1,059
(219)
1,141
1,970
2,281
Direct taxes paid
(991)
(848)
(504)
0
0
Cash Flow from Operations
2,823
6,313
3,205
(830)
(5,584)
(Inc.)/ Dec. in Fixed Assets
(9,216)
(8,956)
(6,426)
(4,500)
(400)
(Inc.)/ Dec. in Investments
(4)
(19)
(362)
0
0
Share of profit/ (loss) from asso.
904
610
820
0
0
Cash Flow from Investing
(8,317)
(8,365)
(5,968)
(4,500)
(400)
Issue of Equity
0.7
0.3
27.9
-
-
Inc./(Dec.) in loans
5,003
3,214
4,619
7,500
4,000
Interest Expenses
(849)
(1,009)
(1,503)
(1,882)
(2,253)
Dividend Paid (Incl. Tax)
(1,162)
(1,189)
(1,004)
(1,004)
(1,004)
Others
15
1
86
-
-
Cash Flow from Financing
3,009
1,017
2,227
4,614
743
Inc./(Dec.) in Cash
(2,485)
(1,035)
(536)
(715)
(5,241)
Opening Cash balances
6,662
4,177
3,142
2,606
1,891
Closing Cash balances
4,177
3,142
2,606
1,891
(3,350)
November 18, 2015
8
Steel Authority of India | 2QFY2016 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016E
FY2017E
Per Share Data (`)
Reported EPS
6.1
3.5
5.4
-
-
Adjusted EPS
6.1
3.5
5.4
-
-
Cash EPS
9.3
10.9
9.8
-
-
DPS
2.0
2.0
2.0
2.0
2.0
Book Value
100.8
104.8
107.0
94.4
77.2
Valuation Ratio (x)
P/E (on FDEPS)
7.5
13.0
8.4
-
-
P/CEPS
4.9
4.2
4.6
-
-
P/BV
0.5
0.4
0.4
0.5
0.6
Dividend yield (%)
4.4
4.4
4.4
4.4
4.4
EV/Sales
0.8
0.9
1.0
1.5
1.8
EV/EBITDA
7.4
9.6
9.0
-
-
EV/Total Assets
0.5
0.5
0.6
0.7
0.8
Returns (%)
ROCE
5.7
3.6
4.4
-
-
ROE
5.7
6.2
4.9
-
-
Turnover ratios (x)
Asset Turnover (Gross Block)
1.0
0.9
0.7
0.5
0.4
Inventory (days)
123.3
123.8
133.6
185.0
200.0
Receivables (days)
38.6
39.4
35.0
31.0
31.0
Payables (days)
173.4
204.1
255.1
354.0
370.3
WC cycle (ex-cash) (days)
14.9
(13.8)
(52.0)
(91.3)
(94.8)
Solvency ratios (x)
Net debt to equity
0.4
0.5
0.6
0.9
1.4
Net debt to EBITDA
0.8
0.9
0.9
0.9
1.1
Interest Coverage (EBIT / Int.)
4.1
2.3
2.0
-
-
November 18, 2015
9
Steel Authority of India | 2QFY2016 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors 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.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. 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). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
Steel Authority of India
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 ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
November 18, 2015
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