9 February 2016
3QFY16 Results Update | Sector: Metals
SAIL
BSE SENSEX
24,021
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
S&P CNX
7,298
SAIL IN
4,130.1
160.9 / 2.4
79 / 38
-14/-20/-30
213
25.0
CMP: INR39
TP: INR30(-23%)
Sell
Operating losses continue to rise; struggling to mend operations
Another stressed quarter for SAIL amid decline in realization and its elevated cost
structure. 3QFY16 LBITDA (-ve EBITDA) of INR13.8b was higher than our estimate
of INR11.3b (and v/s. adj. INR7.6b in 2Q) led by sharp fall in realization and tepid
volume growth. Interest cost rose 12% QoQ to INR5.2b. Loss after tax (LAT)
increased 45% QoQ to INR15.3b.
Realization down 9% QoQ/volumes +1% YoY:
Blended realization declined ~9%
QoQ (or ~INR3,000/t) to INR30,825/t on cheaper imports (higher than our estimate
of ~INR2,000/t QoQ decline). Sales volume grew by just 1% YoY (6% QoQ) to 2.9mt,
underperforming JSW Steel’s (+7%) and Tata Steel’s (+10% YoY) domestic sales
growth. Finished steel inventory at the end of the quarter stood at 1.4mt, down
26kt QoQ / up 60kt YoY.
USD72/t LBITDA:
LBITDA per ton increased by ~INR1,960 QoQ to INR4,764 on
account of lower realization, partly offset by some savings in cost. Staff cost per ton
declined by INR699/t QoQ to INR8,345 on operating leverage; Power and fuel cost
declined INR456 QoQ to INR4,765.
Struggling to mend operations; Maintain Sell:
SAIL needs to aggressively focus on cutting costs, resolving operational issues so
that production can increase, and liquidate inventories to reduce leverage. None of
these efforts are visible so far.
Although measures like MIP, quality order, safeguard duties are likely to curb
imports, yet we see marginal impact on long product pricing (due to rising imports
of scrap). Flat product pricing is likely to improve by ~10% over couple of months,
in our view. However, this will not be enough to pull SAIL out of operational losses.
Therefore, we maintain Sell.
Financials & Valuations (INR b)
Y/E Mar
2016E 2017E 2018E
Sales
382.9 459.8 542.4
EBITDA
-29.5 -16.0
0.5
NP
-45.8 -63.6 -59.7
Adj. EPS (INR)
-11.1 -15.4 -14.5
EPS Gr(%)
-312.4
38.8
-6.1
BV/Sh. (INR)
93.6
75.8
59.0
RoE (%)
-11.1 -18.2 -21.4
RoCE (%)
-5.9
-5.1
-3.9
P/E (x)
-3.5
-2.5
-2.7
P/BV (x)
0.4
0.5
0.7
Estimate change
TP change
Rating change
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.
Sanjay Jain
(SanjayJain@MotilalOswal.com); +91 22 3982 5412
Dhruv Muchhal
(Dhruv.Muchhal@MotilalOswal.com); +91 22 3027 8033

SAIL
Exhibit 1: Quarterly trends in costs
Net Sales Realization (INR/ton)
Volumes (m tons)
Sales
Prodn. (net of interplant transfer)
Expenditure (INR m)
Inc(-)/Dec in stock & captive cons.
Consumption of Raw Materials
Staff cost
Power & Fuel
Other Expenditure
EBITDA
Costs per ton of production (INR)
Inc(-)/Dec in stock & captive cons.
Consumption of Raw Materials
Staff cost
Power & Fuel
Other Expenditure
EBITDA per ton
of sales volumes
3QF14 4QF14 1QF15 2QF15 3QF15 4QF15 1QF16 2QF16 3QF16
38,647 38,931 41,166 39,791 38,837 36,662 35,313 33,797 30,825
3.0
3.0
-3,739
50,819
22,678
12,298
21,211
11,320
3.5
3.1
14,240
48,297
25,206
12,621
22,520
12,208
2.8
2.8
-439
44,267
24,585
13,223
20,478
11,298
2.9
3.1
-596
43,691
23,645
14,751
21,931
13,364
2.9
3.0
-6,506
46,665
23,003
13,508
22,322
12,081
3.2
3.2
-6,540
50,611
26,130
12,753
23,599
9,298
2.7
2.9
-11,440
48,151
24,167
13,466
21,501
-817
2.7
2.7
-3,243
43,889
24,166
13,948
21,494
-7,685
2.9
2.9
-180
41,572
24,202
13,817
23,795
-13,815
Remarks
down -9% QoQ
up 1% YoY
down -2% YoY
down -1% QoQ
up 11% QoQ
-1,261 4,549
-158
-194 -2,201 -2,015 -3,890 -1,214
-62
17,140 15,430 15,946 14,246 15,786 15,592 16,372 16,425 14,335
7,649 8,053 8,856 7,710 7,782 8,050 8,217 9,044 8,345
4,148 4,032 4,763 4,810 4,570 3,929 4,579 5,220 4,765
7,154 7,195 7,377 7,151 7,552 7,270 7,311 8,044 8,205
3,818 3,518 4,101 4,553 4,224 2,943
-303 -2,806 -4,764
down -8% QoQ
down -9% QoQ
up 2% QoQ
Source: MOSL
Exhibit 2: Target price derivation
YEAR
Book value/share (INR)
RoE (%)
Target P/BV (x)
Target Price (INR/share)
2013
100.8
6.1
2014
104.8
4.5
2015
107.0
4.9
2016E
93.6
-11.1
0.4
37
2017E
75.8
-18.2
0.4
30
2018E
59.0
-21.4
0.4
23
Source: MOSL, Company
Exhibit 3: Metal sector valuation
Rating
Steel
Tata Steel
JSW Steel
JSPL
SAIL
Non-Ferrous
Hindalco
Nalco
Vedanta
Mining
Coal India
Hindustan Zinc
NMDC
Sell
Buy
Netural
Sell
Buy
Buy
Neutral
Buy
Buy
Sell
Price
(INR)
236
1,003
61
39
70
34
70
309
164
85
MCAP
(USD M)
3,371
3,570
824
2,370
2,128
1,293
3,047
28,772
10,221
4,947
FY15
2.9
74.5
6.9
5.2
13.5
4.8
20.5
21.7
19.4
16.6
EPS
FY16E
-4.8
-14.5
-27.5
-11.1
-1.6
2.4
6.3
23.2
17.8
8.3
FY17E
-8.5
114.5
-16.0
-15.4
7.5
2.4
1.8
27.4
13.5
6.6
P/E (x)
FY16E FY17E
-49.4
-69.0
-2.2
-3.5
-44.9
14.1
11.0
13.3
9.3
10.2
-27.9
8.8
-3.8
-2.5
9.3
14.5
38.9
11.3
12.2
12.8
EV/EBITDA (x)
FY16E FY17E
15.5
12.9
15.0
-17.7
8.1
4.5
7.3
6.4
5.2
4.8
8.5
6.1
11.3
-39.2
6.8
4.5
8.0
5.5
6.0
7.5
P/B(x)
FY15 FY16E
1.3
1.1
0.3
0.4
0.7
0.7
0.4
4.8
1.6
1.0
1.3
1.2
0.3
0.4
0.7
0.7
0.4
4.7
1.5
1.0
Source: MOSL, Company
9 February 2016
2

SAIL
Financials and Valuations
Income Statement (Consolidated)
Y/E March
Net Sales
Change (%)
Total Expenditure
EBIDTA
Change (%)
EBITDA per ton (INR)
Depreciation
EBIT
Interest
Other income
PBT before EO
Extra ordinary Item
PBT
Current Tax
Defrred Tax
Total Tax
Effective Rate (%)
Reported PAT
Change (%)
Minority Interest
Adjusted PAT
Change (%)
2011
433,994
7.0
354,567
79,427
-16.0
6,768
16,030
63,398
5,724
14,923
72,597
1,239
73,836
24,293
-598
23,696
32.1
50,140
-26.8
1.8
49,296
-27.7
2012
466,582
7.5
402,541
64,041
-19.4
5,618
16,859
47,182
7,782
16,046
55,446
-2,620
52,826
15,234
1,663
16,897
32.0
35,930
-28.3
37,711
-23.5
2013
450,872
-3.4
399,660
51,212
-20.0
4,628
15,297
35,916
8,465
9,451
36,902
-2,293
34,608
11,190
124
11,314
32.7
23,294
-35.2
24,836
-34.1
2014
471,012
4.5
426,026
44,985
-12.2
3,727
18,419
26,566
10,573
8,005
23,999
9,596
33,594
2,527
4,553
7,079
21.1
26,515
13.8
18,940
-23.7
2015
459,520
-2.4
410,531
48,989
8.9
4,183
18,830
30,159
15,349
9,830
24,640
24,640
363
2,696
3,060
12.4
21,580
-18.6
-1
21,580
13.9
2016E
382,916
-16.7
412,376
-29,460
-160.1
-2,564
19,377
-48,837
20,627
3,864
-65,599
-65,599
-237
-19,534
-19,771
30.1
-45,828
-312.4
-1.4
-45,828
-312.4
(INR Million)
2017E
459,828
20.1
475,807
-15,978
-45.8
-1,188
25,520
-41,498
25,508
1,792
-65,214
-65,214
529
-2,147
-1,618
2.5
-63,596
38.8
-1.4
-63,596
38.8
2018E
542,397
18.0
541,934
463
-102.9
30
33,057
-32,593
30,103
1,501
-61,196
-61,196
529
-2,026
-1,498
2.4
-59,698
-6.1
-1.4
-59,698
-6.1
Balance Sheet (Consolidated)
Y/E March
Sources of Funds
Share Capital
Reserves and Surplus
Share holders fund
Loans
Deferred Tax Liability
Capital Employed
Application of Funds
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Curr. Assets, Loans & Advances
Inventory
Sundry Debtors
Cash & Bank Balances
Interest Receivable/Accrued
Loans and Advances
Current Liabilities
Sundry Creditors
Other Current Liabilities
Provisions
Net Current Assets
Application of Funds
E: MOSL Estimates
2011
41,304
334,823
376,127
204,751
15,567
596,457
404,391
238,301
166,091
224,220
608
115,069
40,799
177,490
25,146
31,549
32,651
91,210
60,654
205,538
596,457
2012
41,305
361,426
402,732
173,606
17,817
594,155
440,657
253,014
187,643
283,157
685
138,989
48,478
66,623
22,669
36,711
33,236
97,603
59,962
122,670
594,155
2013
41,305
375,169
416,474
225,405
19,002
660,881
451,411
267,528
183,883
361,549
729
161,657
45,632
41,763
24,772
45,209
34,449
100,715
69,150
114,720
660,881
2014
41,305
391,761
433,067
260,896
22,222
716,184
566,469
283,515
282,953
339,585
565
153,655
55,006
31,580
24,249
52,656
32,218
130,415
61,432
93,082
716,184
2015
41,305
400,724
442,029
305,733
25,661
773,423
678,238
300,877
377,361
293,278
4,538
179,430
32,182
26,063
23,513
76,825
36,297
137,820
65,650
98,247
773,423
2016E
41,305
345,134
386,439
365,733
6,127
758,299
778,238
320,254
457,984
253,278
4,538
146,872
31,473
5,973
23,513
74,857
36,718
137,820
65,650
42,500
758,299
2017E
41,305
271,776
313,081
475,733
3,980
792,794
878,238
345,773
532,464
183,278
4,538
176,373
37,794
9,497
23,513
72,900
44,093
137,820
65,650
72,514
792,794
(INR Million)
2018E
41,305
202,316
243,621
540,733
1,954
786,308
1,028,238
378,830
649,407
57,278
4,538
170,892
44,581
20,515
23,513
71,065
52,011
137,820
65,650
75,085
786,308
9 February 2016
3

SAIL
Financials and Valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value per Share
Dividend Per Share
Valuation (x)
P/E
Cash PE
EV/EBITDA
EV/Sales
EV( USD/Ton)
Price to Book Value
Profitability Ratios (%)
EBITDA Margin
RoE
RoCE (pre-tax)
RoIC (pre-tax)
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors (Days)
Working Capital (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2011
11.9
16.0
91.1
2.4
2012
9.1
12.8
97.5
2.0
2013
6.0
9.3
100.8
2.0
2014
4.6
10.9
104.8
2.0
2015
5.2
9.8
107.0
2.0
2016E
-11.1
-6.4
93.6
2.0
2017E
-15.4
-9.2
75.8
2.0
2018E
-14.5
-6.4
59.0
2.0
3.3
2.4
2.4
0.4
236
0.4
4.3
3.1
4.2
0.6
346
0.4
6.5
4.2
6.7
0.8
760
0.4
8.5
3.6
8.7
0.8
789
0.4
7.5
4.0
9.0
1.0
918
0.4
-3.5
-6.1
-17.7
1.4
1,106
0.4
-2.5
-4.2
-39.3
1.4
1,138
0.5
-2.7
-6.0
1,470.8
1.3
1,076
0.7
18.3
13.8
13.9
37.2
34
97
34
24
0.7
13.7
9.7
10.6
21.6
38
109
30
44
0.8
11.4
6.1
7.2
14.4
37
131
31
59
0.7
9.6
4.5
5.0
8.8
43
119
28
48
0.7
10.7
4.9
5.4
7.6
26
143
32
57
0.6
-7.7
-11.1
-5.9
-10.3
30
140
35
35
0.5
-3.5
-18.2
-5.1
-7.6
30
140
35
50
0.6
0.1
-21.4
-3.9
-5.0
30
115
35
37
0.7
0.1
0.3
0.4
0.5
0.6
0.9
1.5
2.1
Cash Flow Statement
Y/E March
OP/(Loss) before Tax
Depreciation & Amort.
Interest Paid
Direct Taxes Paid
(Inc)/Dec in Working Capital
CF from Oper. Activity
Other Items
CF after EO Items
(Inc)/Dec in FA & CWIP
Free Cash Flows
CF from Inv. Activity
Inc / (Dec) in Debt
Interest Paid
Dividends Paid
CF from Finan. Activity
Inc / ( Dec) in Cash
Add: Opening Balance
Closing Balance
E: MOSL Estimates
2011
73,836
16,030
5,724
-24,293
-32,517
38,779
1,247
40,026
-100,595
-61,974
-100,753
28,373
-5,724
-11,617
11,032
-49,695
227,185
177,490
2012
52,826
16,859
7,782
-15,234
-27,999
34,234
-1,216
33,018
-95,202
-61,045
-95,279
-31,145
-7,782
-9,681
-48,606
-110,867
177,490
66,623
2013
34,608
15,297
8,465
-11,190
-16,909
30,271
339
30,610
-89,147
-58,920
-89,191
51,799
-8,465
-9,613
33,721
-24,860
66,623
41,763
2014
33,594
18,419
10,573
-2,527
11,454
71,514
-3,928
67,586
-93,093
-21,414
-92,928
35,491
-10,573
-9,760
15,158
-10,184
41,763
31,580
2015
24,640
18,830
15,349
-363
-10,682
47,773
-3,433
44,340
-65,462
-21,662
-69,435
44,836
-15,349
-9,909
19,578
-5,516
31,580
26,063
2016E
-65,599
19,377
20,627
2,205
33,689
10,298
10,298
-60,000
-49,702
-60,000
60,000
-20,627
-9,762
29,611
-20,091
26,063
5,973
(INR Million)
2017E
-65,214
25,520
25,508
1,428
-28,447
-41,206
-41,206
-30,000
-71,206
-30,000
110,000
-25,508
-9,762
74,730
3,524
5,973
9,497
2018E
-61,196
33,057
30,103
1,307
6,612
9,883
9,883
-24,000
-14,117
-24,000
65,000
-30,103
-9,762
25,135
11,018
9,497
20,515
9 February 2016
4

SAIL
Corporate profile
Company description
Exhibit 1: Sensex rebased
Steel Authority of India Ltd (SAIL), a public sector
undertaking (PSU), is the largest steel producer in India,
with ~20% market share. Its current capacity of 13mtpa is
vertically integrated from mines to finished steel and is
spread across four plants in the mineral-rich belt of
Chhattisgarh, Orissa and Jharkhand. SAIL is totally self-
sufficient in iron ore (captive mines). However, it has to
depend on purchase of coking coal and a large share is
imported. It has a wide range of products and is a large
producer of special steel.
Source: MOSL/Bloomberg
Exhibit 2: Shareholding pattern (%)
Promoter
DII
FII
Others
Sep-15
75.0
15.7
5.6
3.8
Jun-15
75.0
15.3
6.1
3.6
Sep-14
80.0
10.8
5.7
3.5
Exhibit 3: Top holders
Holder Name
LIC of India
LIC of India Market Plus 1 Growth Fund
NA
NA
NA
% Holding
10.7
1.2
0.0
0.0
0.0
Source: Capitaline
Note: FII Includes depository receipts
Source: Capitaline
Exhibit 4: Top management
Name
P K Singh
Anup K Pujari
Anil Kumar Chaudhary
Mukesh Chand Jain
Designation
Chairman
Chairman
&
Managing
Director
Director (Finance)
Company Secretary
Exhibit 5: Directors
Name
Binod Kumar
Atmanand
N Mohapatra
G Vishwakarma
SUNIL BARTHWAL
Ashok Gupta
Parmod Bindal
Name
Bharathi S Sihag
J M Mauskar
S S Mohanty
Kalyan Maity
Anshu Vaish
P K Dash
Source: Capitaline
Exhibit 6: Auditors
Name
K C Kohli & Co
O P Totla & Co
R J Goel & Co
S Aggarwal & Associates
Sanjay Gupta & Associates
Type
Cost Auditor
Statutory
Cost Auditor
Secretarial Audit
Cost Auditor
Source: Capitaline
Exhibit 7: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
FY18
MOSL
forecast
-11.1
-15.4
-14.5
Consensus
forecast
-5.0
-0.2
-0.4
Variation (%)
120.5
6,479.7
3,654.0
Source: Bloomberg
9 February 2016
5

Disclosures
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SAIL
or
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