SAIL Q2 results: 10x rise in profits, beats estimates

Most brokerages have maintained a bullish view on SAIL (Steel Authority of India) after the company reported a strong set of numbers in Jul-Sep 21 period. Here are the highlights from the earnings, and the outlook going forward. 

Consolidated Net profit soars: Domestic steel giant SAIL has reported a 10-fold rise in its consolidated net profit at Rs 4,338.75 crore for the Jul-Sep 21 period, backed by strong improvement in realizations. The company had posted Rs 436.52 crore net profit in the year-ago quarter.

Total income rises: SAIL also reported an exceptional increase in the consolidated income. During Q2FY22, the income increased to Rs 27,007.02 crore from Rs 17,097.57 crore in the corresponding quarter last financial year. Analysts had earlier anticipated a total income of Rs 25,000 crore

EBITDA and margin: The company’s standalone EBITDA for the quarter stood at Rs 7,017 crore, up 269% YoY. The margin grew by 1493 bps YoY but down 564 bps QoQ and at 26.2%. Higher coking coal prices weighed on the margins during the quarter. 

Expenses - The company expenses increased to Rs 21,289 crore against Rs 16,733.63 crore in the year-ago period. The company produced 4.468 million tonnes (MT) of crude steel during the quarter under review and sold 4.280 MT of steel.

Dividend - The board has declared an interim dividend of Rs 4 per share for the current fiscal year.

SAIL quarterly results in Jul-Sep 21: Review

SAIL has reported a strong set of numbers for the Jul-Sep 21 period, thanks to improved demand from construction and infrastructure segments (65% of output) which led to strong offtake during the quarter. The company has also strengthened its balance sheet during the period. SAIL’s net debt has reduced,  helped by a surge in cash from operations. Strong steel pricing environment and tighter working capital management aided the growth in EBITDA. However, the margins came under pressure due to higher coking coal prices. 

Going forward, the company has shared its vision of becoming a 50-MTPA company in the medium term. SAIL has maintained its sales volumes guidance in the range of 16.5 MT -17 MT (H1FY22: 7.61 MT) in FY22 and 18 MT in FY23. SAIL is confident of a strong demand outlook, based on the economic recovery in the second half of FY22. The export markets remain favourable with lower net exports from China on the back of production cuts. This should help the company to continue to post strong performance going forward.

SAIL financial results: Brokerage take

Following the earnings, Dolat Capital has maintained a 'Buy' rating with a target price of Rs 270. After surprising the markets with solid Rs 7,800 crore deleveraging in Q2, management sounded confident of being able to pay down its entire debt by first quarter FY23-end, noted Dolat. However, Dolat pointed out that there are headwinds of higher coking coal costs in Q3 and Q4. At this level of costs, steel companies would be compelled to announce price hikes. 

Systemix said that SAIL would likely reduce net-debt further by Rs 25,000 crore over the next 12-18 months, even after a likely dividend of Rs 23 per share based on a mandated 30% payout for public sector undertakings. This provides a strong downside support, and a de-leveraged balance sheet would drive stock re-rating. However, the biggest risk to SAIL would be the government's measures to change it into a milch cow through levies, as has been the case with several other PSUs in India. It has maintained a  'Buy' rating, and upgraded target price to Rs 182 per share from Rs 177 earlier. 

Domestic firm Prabhudas Lilladher noted that sentiments on Chinese demand turned negative across the major steel consuming sectors. Given the restricted supplies of Chinese steel in its domestic and export markets, global steel prices are expected to remain elevated, further supported by all-time high coking coal prices. Given higher coking coal prices, margins were expected to soften. The research house has maintained an  'Accumulate' rating but cut target price to Rs 155 from the earlier Rs 170. SAIL shares closed Tuesday’s session at Rs 122.30 on NSE.