SAIL

This giant of a PSU managed to maintain its growth momentum for the first quarter ended 30th June 2008 on a YoY basis. But on a QoQ, its topline and bottomlines have taken a dip. Also its profit margins, OPM as well as NPM, be it yearly or sequential, have shown a fall. YoY, its net sales rose by 37% at Rs.11029.44 crore, while QoQ, it fell by 18%. Of this, Bokaro steel plant was the largest contributor, it added 25% to the topline. Rourkela plant added 17%, Durgapur plant contributed 13%, IISCO plant added around 5.5% and the other miniscule contributions came from Visversvaraya Iron and Steel plant and Salem steel plant. YoY, the company’s realisations have increased 29%. The last price hike was in March 2008 and since then, the Govt has intervened and asked the steel makers to keep a cap on their prices. Currently, prices in the domestic market are at least Rs 4,500 per tonne lower than the international price. And it is this inability to pass on the rising costs of raw materials, mainly coal, which has eaten into the margins, when one looks on a sequential basis. It clearly indicates that the company is facing the crunch on the margins due to the Govt intervention. Its fuel bill for current Q1 was at Rs.779.20 crore, as against Rs.674.03 crore in Q1FY08 and at Rs.749.82 crore in Q4FY08. Another major cost component is the employee costs, which YoY has increased by a whopping 53%. Surprisingly, QoQ, employee cost has shown a reduction of 32%. PAT, YoY rose 20% at Rs.1835.19 crore while it showed a decline of 23% on a QoQ basis. OPM, on a YoY reduced from 33.46% to 28.71% and NPM was down from 18.97% to 16.64%. It was expected that the steel companies would hike their prices from 1st August but the Govt has once again intervened. The company imports 70% of its coking coal and and the prices, YoY has increased by around 200%. And with the inability to pass on the price rise to consumers, margins in the coming quarter are expected to continue to remain under pressure. Coal prices have started showing some signs of a cool down and if the trend continues, that might help the margins. It plans to improve its margins by selling more value added products, which would again fetch a higher price. With a high/low of Rs.292/Rs.117 respectively, currently quoted at Rs.147, stay invested with a medium term outlook. source