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Informist, Monday, Oct. 14, 2024

By Rajesh Gajra

MUMBAI – There are wide-ranging views on the bottomline performance of public sector steel behemoth Steel Authority of India Ltd. among analysts for the quarter ended September. But analysts' views on SAIL are confined to a narrow band with regard to the company's revenue performance.

SAIL's topline is largely seen tracking the prices of domestic hot rolled steel, excluding the prices in Mumbai, which were down 7.8% on average in the September quarter as compared to the same quarter a year ago. The net profit is likely to be affected by weak volumes and a fall in realisation, but there is divergence among analysts on the impact of input costs and other non-operating costs.

In Jul-Sept, SAIL's net profit will likely have been INR 535 million and revenue from operations will likely have been INR 246.31 billion, according to an average of estimates by 11 brokers. Although the net profit estimate represents a large 95% fall on year and an equally large five times on-quarter rise, the estimates vary widely from a low of net loss of INR 4.13 billion by ICICI Securities to a high of net profit of INR 9.4 billion by Prabhudas Lilladher.

On the other hand, brokers' estimates for revenue from operations range in a narrow band, from a low of INR 228.88 billion to a high of INR 277.26 billion. The average revenue estimate is INR 246.31 billion, 17% lower than that reported in the year ago period and up 2.6% on quarter. The operating profit, as denoted by the earnings before interest, tax, depreciation, and amortisation, is seen ranging from a low of INR 12.5 billion to INR 31.2 billion, according to estimates by nine brokers.

During the September quarter, domestic steel spreads would have come under pressure due to lower steel realisation and lower volume, Antique Stock Broking said in a preview report. The average domestic steel hot rolled coil price was INR 50,331 per tonne, lower by nearly 11% on year and 6% on quarter, it said. "The combination of lower domestic demand and higher exports from China has put pressure on ex-China prices, including Indian HRC (hot rolled coil) prices," Axis Securities said in a preview report.

TOPLINE BLUES

SAIL will likely have sold 4-4.9 million tonnes of steel in the September quarter, according to four brokerages. While Kotak Securities' institutional equities division estimates the company's Jul-Sept volume to be 4.91 million tonnes, up 3% on year and 23% on quarter, Prabhudas Lilladher expects it to be 4.63 million tonnes or 3% down on year. Nuvama Wealth Management estimates SAIL's volume to be 4.11 million tonnes, while Axis Securities estimates it to be 4 million tonnes or 16.3% down on year, and sequentially flat.

There is also a divergence on the impact of volume and price factors on the sales realisation for SAIL. Despite a projected 13.8% on-year fall in volume and on-year fall of 7-11% in domestic hot rolled coil prices in the industry, Nuvama Wealth estimates sales realisation per tonne of SAIL to come down by only 3% on year. On the other hand, Kotak Securities has given an estimate of 3.7% decline on year in realisation, in line with its expectations of a 3% volume growth, and the weakness in steel prices, which have fallen by 7% or more on year.

A 3.7% decline in realisation would likely result in EBITDA per tonne declining 7.8% on year, according to calculations by Kotak Securities. Broker Nuvama Wealth Management holds the opposite view and estimates the EBITDA per tonne to increase by 4.3% on year despite a projected 13.8% on-year fall in volume. Lower coking coal prices are seen by some brokers as offsetting the impact of lower realisation.

SAIL hasn't fixed a board meeting date so far to approve its financial results for the quarter ended September. Post-results announcement, investors would watch out for management commentary on demand conditions and pricing trajectory in the face of Chinese competition.

Broker IDBI Capital Market Services said it would watch out for SAIL's update on working capital buildup, capacity expansion, and contribution of low margin semi-finished products after the results. The company's management had said in the previous quarter's post-earnings conference call with analysts that its net debt had risen by around INR 50 billion to INR 356.59 billion due to accumulated coal stocks. The company had long-term agreements with some coal miners who have scheduled shutdowns in the the second half of the current financial year. Due to this, SAIL picked up coal socks in advance from them in the June quarter.

Shares of SAIL ended Monday 0.2% higher at INR 134.33 on the National Stock Exchange.

Following are the Jul-Sept earnings estimates of SAIL based on reports compiled by Informist from 11 brokerage houses:

End

Edited by Vidhi Verma

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