16 September 2020
1QFY21 Results Update | Sector: Metals
SAIL
ESTIMATE CHANGE
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
CMP: INR38
SAIL IN
4,130
157.2 / 2.2
52 / 20
-6/14/8
1205
25.0
TP: INR42 (+10%)
Neutral
EBITDA seen to be improving, but leverage to remain high
Net debt/EBITDA remains discomforting at 5x
SAIL’s 1QFY21 result was weak, as expected, with EBITDA loss of ~INR4.0b
posted due to weak domestic demand and prices. The outlook, however, has
improved, with both demand and pricing recovering in the quarter.
We expect better volumes and pricing to drive a 30% CAGR in EBITDA over
FY20–22E. Net debt, however, is expected to remain elevated at INR467b in
FY22, implying 5x net debt/EBITDA. The stock also trades at 6.3x EV/EBITDA,
implying limited upside. Thus, we maintain
Neutral,
with TP of INR42.
Standalone revenue declined 44% QoQ to INR90.7b (our estimate: INR93.7b)
in 1QFY21 on 40% QoQ (32% YoY) decline in volumes to 2.2mt (in-line). This
was weighed by weak domestic demand due to country-wide lockdown in
1QFY21. Share of exports stood at ~24% of total volumes.
Derived realization declined 6% QoQ to INR40,534/t (our estimate:
INR42,194/t) on lower steel prices and an adverse product mix.
SAIL’s high fixed cost structure impacted margins adversely as negative
operating leverage inflated fixed cost (such as employee cost) by
~INR2,100/t and other expenses by ~INR2,000/t.
Lower realization, coupled with negative operating leverage, led to per ton
EBITDA loss of ~INR1,801 (est.: -524/t) v/s gains of INR5,218/t in 4QFY20.
As a result, SAIL reported EBITDA loss of INR4.0b v/s EBITDA of INR19.5b in
4QFY20 (our estimate: INR1.2b loss).
The company reported PBT loss of INR19.9b (our estimate: INR18.2b) and
PAT loss of INR12.7b (v/s adj. PAT of INR2.9b in 4QFY20).
SAIL registered sales of 1.58mt in Jul’20 (+50% YoY) and 1.43mt in Aug’20
(up 35% YoY). This resulted in decline of ~25% in finished steel inventory
levels to 1.23mt at Aug-end v/s 1.65mt in Jun’20.
Avg NSR stood at INR35,400/t in 1QFY21, lower by INR3,000/t QoQ. Average
NSR for 2QFY21 is expected to be higher by ~INR3,000/t QoQ.
SAIL guided for improvement in longs steel prices, led by demand
improvement post the monsoons.
In 2QFY21, raw material cost is likely to benefit from decline in coking coal
prices. Coking coal prices, which stood at INR12,500/t in Jun’20, declined to
INR10,800/t in Aug’20. Higher operating leverage should reduce the impact
of fixed cost on a per ton basis.
SAIL expects to sell 16.0mt of steel in FY21, targeting exports of 2.4mt. Over
Apr–Aug, it had already exported 1.0mt.
SAIL’s gross debt stood at INR544b at 1QFY21-end; however, it declined to
INR498b at Aug-end owing to improved sales and liquidation of inventory.
SAIL has sold 500kt of iron ore from its mines thus far in 2QFY21 (100kt in
1QFY21).
Financials & Valuations (INR b)
Y/E MARCH
2020 2021E 2022E
Sales
EBITDA
Adj. PAT
EBITDA Margin (%)
Cons. Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
FCF Yield (%)
-80.7
0.4
12.1
10.9
0.4
7.8
6.7
0.3
6.3
1.3
-0.5
3.3
1.2
3.4
5.4
1.0
5.4
6.8
616.6 629.7 694.3
57.1
-1.9
9.3
-0.5
NA
83.3
14.4
13.2
3.5
NA
98.5
23.5
14.2
5.7
64.0
Negative operating leverage leads to EBITDA loss
100.5 103.5 108.7
Volumes improving on market share gains; NSR higher by 3000+/t QoQ
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Jun-20 Mar-20 Jun-19
75.0
75.0
75.0
14.2
14.6
15.4
2.8
2.9
3.9
8.0
7.5
5.7
FII Includes depository receipts
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com)
Basant Joshi - Research analyst
(Basant.Joshi@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.