PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Transcription

1 BUY CMP Target Price STEEL AUTHORITY OF INDIA LTD Result Update (PARENT BASIS): Q1 FY15 SEPTEMBER 3 rd,2014 ISIN: INE114A01011 Index Details Stock Data Sector Iron & Steel BSE Code Face Value wk. High / Low (Rs.) /45.80 Volume (2wk. Avg. Q.) Market Cap (Rs. in mn.) Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) 1 Year Comparative Graph STEEL AUTHORITY OF INDIA LTD BSE SENSEX SYNOPSIS Steel Authority of India Limited (SAIL) is the leading steel-making company in India, producing basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. For the end of Q1 FY15, net profit increased by 17.51% to Rs million from Rs million for the quarter ended Q1 FY14. For the 1 st quarter of the financial year 2014, the company net sales of grew up by 10.45% y-o-y to Rs million from Rs million in the corresponding quarter of the previous year. Operating profit registered a growth of 11.08% y-o-y at Rs million in Q1 FY15 as compared to Rs million in Q1 FY14. Profit before tax (PBT) at Rs million in Q1 FY15 compared to Rs million in Q1 FY14, registered a growth of 17.63% y-o-y. Net-worth of the company as on 30 th June 2014 was at Rs million as against Rs million on 30 th June, Orders for over Rs mn have already been placed for various Modernisation & Expansion Projects. In Retail sales, 27% growth was achieved over Q1 FY14 with a total supply of 0.14 million tonnes. As on July 1 st 2014, SAIL has 2,984 dealers, including 976 Rural Dealers. Net Sales and Operating profit of the company are expected to grow at a CAGR of 8% and 5% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Steel Authority Of India Ltd Tata Steel Ltd Jindal Steel & power Ltd JSW Ltd

2 Recommendation & Analysis - BUY For the quarter ended 30 th June 2014, Steel Authority of India Limited (SAIL) has reported its net sales up by 17.51% y-o-y to Rs million from Rs million for the quarter ended 30 th June, For the end of Q1 FY15, net profit increased by 17.51% to Rs million from Rs million for the quarter ended Q1 FY14. EBIDTA or Operating profit registered a growth of 11.08% y-o-y at Rs million in Q1 FY15 as against Rs million in Q1 FY14.Profit before tax (PBT) at Rs million in Q1 FY15 compared to Rs million in Q1 FY14, registered a growth of 17.63% y-o-y. Capex during Q1 FY15 was Rs mn. CAPEX Plan for is Rs mn. Total CAPEX includes Rs mn spent against ongoing Modernization &Expansion Plan. During the current financial year, significant progress has been made in the Modernization & Expansion projects at Rourkela Steel Plant (RSP). With commencement of production in RSP s New 4.3 meter wide Plate Mill and the third 150 tonne BOF converter, integrated operations in the modernized units of RSP has commenced. IISCO s massive modernization and expansion program is expected to be completed early third quarter. SAIL has already put into operation units worth Rs mn of investments and the modernization is reaching its completion at the right time which will enable the company to reap the benefit of a rising steel demand. IISCO Steel Plant (ISP) is undergoing a massive modernization and expansion program at a cost of around Rs mn which is being set up within a compact area of 953 acres. Being the single largest investment in the state, it is poised to change the face of industrial economy of Bengal. Orders for over Rs mn have already been placed for various Modernisation & Expansion Projects. Various options for raising fund to finance the Capex Plan, including ECB, ECA, Domestic / International Bonds and Term Loans from Banks are being continuously explored to minimize the debt cost. Net-worth of the company as on 30 th June 2014 was Rs million as compared to Rs million on 30 th June, To maintain its current dominance in the domestic market and to meet the future challenges, the Company is working on a long- term strategic plan 'Vision 2025', which will steer the Company towards a target of 50 million tonnes of Hot Metal production, thereby meeting the strategic objectives of achieving leadership in Indian Steel sector and a position amongst the top Steel companies globally. As on 1 st July 2014, SAIL had 2,984 dealers, including 976 Rural Dealers, stationed in 595 districts of the country. Hence, we recommend BUY for STEEL AUTHORITY OF INDIA LTD with a target price of Rs on the stock for Long term investment.

3 QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q1 FY15, Steel Authority of India Limited (SAIL) is the leading steel-making company in India and has the distinction of being India s second largest producer of iron ore and of having the country s second largest mines network and also its flat steel products is much in demand in the domestic as well as the international market, has reported its financial results for the quarter ended 30 th JUNE, Rs. In million JUNE-14 JUNE-13 % Change Net Sales PAT EPS EBITDA The company has achieved Net sales of Rs million for the 1 st quarter of the current year as against Rs million in the corresponding quarter of the previous year. The company has reported an EBITDA of Rs million and increase of 11.08% over corresponding quarter of previous year. For Q1 FY15, net profit rise up by 17.51% to Rs million from Rs million for Q1 FY14. The company has reported an EPS of Rs for the 1 st quarter as against an EPS of Rs in the corresponding quarter of the previous year. Break up of Expenditure: During the quarter, Total Expenditure rose by 9 per cent mainly on account of increased Depreciation by 4%, Employee Benefits Expenses by 7%, Power & fuel Expenses by 15%, other expenditure 9% are the primary attribute for the growth of expenditure when compared with corresponding quarter of previous year. Total expenditure in Q1 FY15 stood to Rs million as against Rs million in Q1 FY14. Break up of Expenditure Rs. in Millions Q1 FY15 Q1 FY14 Cost of Materials Consumed Purchase of Traded Goods Employees Benefit Expenses Power & Fuel Depreciation Other Expenditure

4 Segment Revenue Latest Updates International Coal Ventures Pvt. Limited (ICVL), a joint venture Company of Steel Authority of India Limited, Coal India Limited, Rashtriya Ispat Nigam Limited, NMDC Ltd. and NTPC Ltd. has signed an agreement for acquisition of 2.6 billion tonnes coal resource in Mozambique with Rio Tinto Plc., UK. During the first quarter of the financial year, the net worth of the company increased to Rs mn as on as compared to Rs mn as on The management s continued emphasis on production and sale of value added products has enabled significantly higher Net Sales Realization (NSR) which was better than the earlier quarters. SAIL has already put into operation units worth Rs mn of investments and the modernization is reaching its completion at the right time which will enable the company to reap the benefit of a rising steel demand. During the current financial year, significant progress has been made in the Modernization & Expansion projects at Rourkela Steel Plant (RSP). With commencement of production in RSP s New 4.3 meter wide Plate Mill and the third 150 tonne BOF converter, integrated operations in the modernized units of RSP has commenced. IISCO Steel Plant (ISP) is undergoing a massive modernization and expansion program at a cost of around Rs mn which is being set up within a compact area of 953 acres. Being the single largest investment in the state, it is poised to change the face of industrial economy of Bengal.

5 Orders for over Rs mn have already been placed for various Modernisation & Expansion Projects. Orders Placed/ Expenditure are excluding Capex Plan of Rs mn for development of Raw Material facilities. Actual Expenditure till on Raw material Development is Rs mn. MoU has been signed with Chhattisgarh Mineral Development Corporation (CMDC) for exploring Eklama Mines at Chattisgarh, under Joint Venture between SAIL and CMDC. In Retail sales, 27% growth was achieved over Q1 FY14 with a total supply of 0.14 million tonnes. As on , SAIL had 2,984 dealers, including 976 Rural Dealers. COMPANY PROFILE Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. SAIL is also among the seven Maharatnas of the country's Central Public Sector Enterprises. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structural s, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. SAIL's wide range of long and flat steel products is much in demand in the domestic as well as the international market. SAIL's own Central Marketing Organisation (CMO) that transacts business through its network of 37 Branch Sales Offices spread across the four regions, 25 Departmental Warehouses, 43 Consignment Agents and 27 Customer Contact Offices. CMO s domestic marketing effort is supplemented by its ever widening network of rural dealers who meet the demands of the smallest customers in the remotest corners of the country. As on , SAIL had 2,984 dealers, including 976 Rural Dealers, stationed in 595 districts of the country. SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL s five integrated steel plants. INTEGRATED STEEL PLANTS 1. Bhilai Steel Plant (Bsp) In Chhattisgarh Major facilities are expected to be progressively commissioned as follows: Facilities completed during H2 FY : Second Sinter Machine in Sinter Plant-3

6 During FY New Coke Oven Battery No. 11 (7 m tall) Facilities to be completed During FY : Blast Furnace 4060 m3. New Steel Melting Shop (SMS-3) with New Billet Casters/Billet-cumBloom Caster, Beam Blank Caster Universal Rail Mill Bar and Rod Mill 2. Durgapur Steel Plant (Dsp) In West Bengal Major facilities are expected to be progressively commissioned as follows: Facilities completed Rebuilding of Coke Oven Battery no-2 New Ladle Furnace (125T) Coke Sorting & Coal Handling Plant During New Dolomite Plant (300tpd) Up-gradation of raw material/coal handling facilities Bloom-cum-Round Caster 1X4 (0.75 Mtpa) New Medium Structural Mill (1.0 Mtpa) 3. Rourkela Steel Plant (Rsp) In Orissa Facilities Completed: New Coke Oven Battery -6(7 m tall, 1 x 67 ovens) New Sinter Plant -3(1 x 360m²) New Blast Furnace -5, 4060 m3 useful volume. New 3 rd Single Strand Slab Caster New Oxygen Plant 2X700 tpd on BOO basis Reheating Furnace & Rolling facilities for New 4.3 meter Wide Plate Mill New 3 rd BOF (150 T) Convertor

7 During H2 FY Finishing facilities for New 4.3 meter Wide Plate Mill. 4. Bokaro Steel Plant (Bsl) In Jharkhand Facilities Likely to be Completed During FY : Up-gradation of HSM with augmentation of Roughing facility & replacement of Re-heating Furnace. Integrated commissioning of New CRM Complex, including Galvanising facilities- 1.2 Mtpa Up-gradation of SMS II with Auxiliary facilities/hot metal de-sulphurisation units. SPECIAL STEEL PLANTS Alloy Steels Plants (ASP) in West Bengal. Salem Steel Plant (SSP) in Tamil Nadu. Visvesvaraya Iron and Steel Plant (VISL) in Karnataka. Subsidiary SAIL Refractory Company Limited. Joint Ventures NTPC SAIL Power Company Pvt. Limited (NSPCL) Bokaro Power Supply Company Pvt. Limited (BPSCL) Mjunction Services Limited SAIL-Bansal Service Centre Limited Bhilai JP Cement Limited SAIL & MOIL Ferro Alloys (Pvt.) Limited S & T Mining Company Pvt. Limited International Coal Ventures Private Limited SAIL SCI Shipping Pvt. Limited SAIL RITES Bengal Wagon Industry Pvt. Limited SAIL SCL Limited Bokaro JP Cement Limited

8 FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31, E 2013A 2014A 2015E 2016E I. EQUITY AND LIABILITIES: A) Shareholders Funds: a) Share Capital b) Reserves and Surplus Sub - Total Net worth B) Non-Current Liabilities: a) long-term borrowings b) Deferred Tax Liabilities [Net] c) Other Long Term Liabilities d) Long Term Provisions Sub - Total Long term liabilities C) Current Liabilities: a) Short-term borrowings b) Trade Payables c) Other Current Liabilities d) Short Term Provisions Sub - Total Current Liabilities TOTAL EQUITY AND LIABILITIES (A + B + C) II. ASSETS: D) Non-Current Assets: Fixed Assets i. Tangible Assets ii. Intangible Assets iii. Capital work-in-progress a) Total Fixed Assets b) Other non-current assets c) Non Current Investments d) Long Term Loans and Advances Sub - Total Non-Current Assets Current Assets: E) a) Inventories b) Trade Receivables c) Cash and Bank Balances d) Short Term Loans and Advances e) Other Current Assets Sub - Total Current Assets TOTAL ASSETS (D + E)

9 Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 DEC, 2013 to 30 SEP, 2014E Value(Rs.in.mn) 31-Dec Mar Jun Sep-14E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Exceptional Items Profit Before Tax Tax Net Profit Equity capital Face value EPS

10 Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) EBITDA Margin (%) PBT Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) Debt Equity Ratio EV/EBITDA (x) Book Value (Rs.) P/BV Charts:

11 OUTLOOK AND CONCLUSION At the current market price of Rs.86.30, the stock P/E ratio is at x FY15E and x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.4.92 and Rs.5.51 respectively. Net Sales and Operating profit of the company are expected to grow at a CAGR of 8% and 5% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 1.14 x for FY15E and 1.09 x for FY16E. Price to Book Value of the stock is expected to be at 0.80 x and 0.77 x respectively for FY15E and FY16E. The company is maintaining the momentum in sales growth, which will be supported by production of better and wider range of products like universal beam, wire rods and wider plates from the new state-of-the-art facilities coming up in phases. We recommend BUY in this particular scrip with a target price of Rs for Long term investment. INDUSTRY OVERVIEW Amongst the large steel consuming nations, the steel consumption growth in India has been 2nd only to China. With the steel consumption growth rate in China projected to moderate to around 3% in future, India is going to emerge as fastest growing major steel consuming nation. During , domestic crude steel production was 81.5 million tonnes, a growth of 4% over Total finished steel at 85 million tonnes, registered a growth of 4.1% during Export of finished steel at 5.6 million tonnes exceeded the imports of 5.4 million tonnes, after a gap of 5 years. Higher exports were driven by volatility of the rupee, and mismatched demand-supply situation in vis-à-vis previous year Financial Year constituted another sub 5% GDP growth year, with the overall GDP growth for fiscal estimated at 4.7%, which is only marginally higher than 4.5% of Industrial growth remains the weakest link in reviving economic growth, staying put at 0.4% over previous year. Mining & Quarrying and Manufacturing posted negative growth of (-) 1.4% & (-) 0.7% respectively. For eight core industries coal, fertilizer, electricity, crude oil, natural gas, refinery products, steel, and cement the average growth rate declined from 6.5 per cent during to 2.7 percent during However, there has been a marginal recovery in construction sector which grew at 1.6% aggregated for the sector. The growth registered in electricity was 6.1% while capital goods and consumer durables showed decline of 3.6% and 12.2% respectively. However, IMF in its latest outlook (July, 2014) has stated that growth in India appears to have bottomed out, and activity is projected to pick up gradually after the post-election recovery in business sentiment, offsetting the effect of an unfavourable monsoon on agricultural growth.

12 OUTLOOK During Financial Year , the renewed focus on infrastructure viz. development of smart cities, ports, Pradhan Mantri Gram Sadak Yojna, power plants, plan for doubling pipeline grid, metro for tier 2 cities, industrial corridor, incentives for housing, and revival of SEZ etc. will go a long way to consolidate growth, giving a fillip to the steel sector which has faced stagnant demand of late. Further, in the General Budget for , a host of measures inter alia, opening up of more sectors for FDI, plans to accelerate manufacturing growth and facilitating investments, would give a push to the economy. The GDP growth for fiscal has been projected in the range 5.4% to 5.7%, with the subsequent achievement of 7%-8% in the next 3-4 years. The pick-up in GDP growth and especially in the steel using sectors such as construction, infrastructure and manufacturing are expected to revive growth for steel consumption. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

13 Firstcall India Equity Research: C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods B. Anil Kumar Auto, IT & FMCG M. Vinayak Rao Diversified C. Bhagya Lakshmi Diversified B. Vasanthi Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO s, QIP s, F.P.O s,takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai Tel. : / / Telefax : info@firstcallindiaequity.com