SAIL India - FY08 Performance - by Narasimhan
COMPANY HISTORY
Steel Authority of India Limited (SAIL), a leading public sector steel company was incorporated in the year 1973 by the Government of India. In the year 1954,the Indian government promoted Hindustan Steel private Ltd, for the production of steel to aid the rapid growth of Industries in India. The company opened manufacturing units at Rourkela, Bhilai, Durgapur and Bokaro. In 1973, Government of India made a new Industrial policy under which all the five steel plants were integrated and managed by the newly formed company, Steel Authority of India (SAIL). It is the largest steel producer in India and 16th largest in the world. The company manufactures all forms of iron and steel products, that includes plates, bars, and rods, industrial pollution control equipments, railway products, galvanized sheets, hot and cold rolled sheets, stainless steel and alloy steels. Government of India holds 86% stake in the company. SAIL owns a research and development center for Iron and Steel at Ranchi. The company now operates five integrated plants at Rourkela, Bhilai, Durgapur, Bokaro, and Burnpur. It also owns three special steel plants at Durgapur, Salem and Bhadravathi and a wholly owned subsidiary Maharastra Elektrosmelt Limited at Maharastra. The company has a wide domestic network and also exports to international market. It has nearly 34 sales offices and 42 warehouses. The company today produces 14 million metric tons of iron per annum.
RECENT DEVELOPMENTS
- Indian government is planning to invest about Rs.53, 000 crore for expansion of the company’s plants. This will help the companies to leverage the production to 26 Million tons.
- The Union Cabinet recently approved the merger of Bharat refractors, a refractory bricks manufacturing industry with SAIL.
- The company is gearing up to launch three steel processing units for producing tailor-made steel products that are used in the construction industries.
- SAIL has plans to own a few bulk carriers in a Joint Venture with Shipping Corporation of India. The company will use these carriers for importing coal from the offshore countries Australia, China, Egypt etc.
FINANCIALS
The company announced the results of its final quarter in the middle of May. The company posted a net profit of Rs.23736.1 million, an increase of 24.9% compared to the same period last year. The sales increased by 40% and stood at Rs.154,566.3 million as compared to the sales amounting Rs. 110,143.6 million in the last quarter ended March 31,2008,an increase of Rs.44,422.7 million. The operating profit margin decreased by 20% on QoQ basis and 14.61% on YoY basis. This is due to the rise in the costs of inputs and the export duty. Input costs rose to Rs.349.9% from 53.6% between 2004-05 and 2008-09.In the last two quarters the steel prices surged by 30-50%.
| Rs Millions | Mar ' 08 | Dec ' 07 | Sep ' 07 | Mar ' 07 |
| Sales | 154566.3 | 110143.6 | 105840 | 119351.8 |
| Operating profit | 33436.8 | 29833.7 | 26290.9 | 30235.6 |
| Interest | 521.9 | 597.5 | 593.6 | 554.8 |
| Gross profit | 36688.4 | 32379.6 | 28739.9 | 32068.7 |
| Depreciation | 3170.6 | 3160.3 | 3012 | 2822 |
| Net profit / loss | 23736.1 | 19346.6 | 17002.4 | 18992.6 |
| Equity capital | 41304 | 41304 | 41304 | 41304 |
| EPS (Rs) | 5.75 | 4.68 | 4.12 | 4.6 |
| OPM (%) | 21.63% | 27.09% | 24.84% | 25.33% |
| GPM (%) | 23.74% | 29.40% | 27.15% | 26.87% |
| NPM (%) | 15.36% | 17.56% | 16.06% | 15.91% |
The company’s Q4 performance compared with other companies is tabulated below
| Rs Millions | SAIL | Tata Steel | JSW Steel | Visa Steel |
| Sales Turnover | 134779 | 57366.9 | 41898.1 | 2619.3 |
| Other Income | 3773.5 | 275.3 | 361.6 | -22.7 |
| Total Income | 138552.5 | 57642.2 | 42259.7 | 2596.6 |
| Total Expenses | 101342.2 | 33343.7 | 32424.3 | 2154.1 |
| Operating Profit | 33436.8 | 24023.2 | 9473.8 | 465.2 |
| Gross Profit | 37210.3 | 24298.5 | 9835.4 | 442.5 |
| Interest | 521.9 | 2338.9 | 1911.3 | 53.5 |
| PBDT | 39820.9 | 20517.4 | 9315.3 | 389 |
| Depreciation | 3170.6 | 2091.5 | 2333.2 | 58.6 |
| PBT | 36650.3 | 18425.9 | 6982.1 | 330.4 |
| Tax | 12914.2 | 6370.8 | 2372.1 | 120.6 |
| Net Profit | 23736.1 | 12055.1 | 4610 | 209.8 |
| Earnings Per Share | 5.75 | 16.5 | 24.65 | 0 |
| Equity | 41304 | 7307.8 | 1870.5 | 1100 |
| OPM | 24.81% | 41.88% | 22.61% | 17.76% |
| NPM | 17.13% | 20.91% | 10.91% | 8.08% |
The company tops in the list by overall good performance in all the fields. The operating costs of the companies will soar in the upcoming days because Coal India Limited urges the steel companies to pay 40% higher price for a ton of coal. As the company is going to use its own carriers from this fiscal, paying high freight charge can be controlled. We can expect good results in the forthcoming quarters because the company is going to expand its level of production and planning to open nearly10 Steel processing units in this fiscal.
STOCK OUTLOOK
The stock is now trading at the level of 130-140.It is evident from the above chart that the stock is now in a medium term downward trend. The stock is expected to penetrate its long term support level of 125 and going to strike a New Year Low. So new investors may wait for a few weeks and accumulate this stock after it gets stabilized at the level of 140.