SAIL on Friday reported a 31% increase in consolidated net profit for the fiscal fourth quarter, which the state-owned steelmaker attributed to higher production and improvement in operational efficiency.
Net profit rose to Rs 3,469.88 crore for the quarter ended March 31 from Rs 2,647.52 crore a year earlier. Fourth-quarter consolidated revenue from operations rose 44% to ₹23,284 crore.
On annual basis, the company reported a 90.5% increase in net profit at Rs 3,850 crore. Revenue grew 12.2% to Rs 68,452 crore. SAIL reported its highest ever quarterly production of hot metal, crude steel and saleable steel in the fourth quarter at 4.98 million tonnes (MT), 4.56 MT and 4.42 MT, respectively.
The company said its net debt shrank nearly a third to Rs 35,350 crore as of March 31.
With such stellar numbers, brokerages believe SAIL can be a doubler. Here is what they have to say.
Steel prices are likely to stay elevated over the next 9-12 months as the cost of production in China has risen to ~US$ 750/tonne, a ramp-up in world steel production ex-China is further increasing ore prices, and chatter of export tax on steel in China is likely to lower steel exports. With iron ore prices trading above US$ 200/ tonne, SAIL – as an integrated producer – is likely to benefit the most. Going ahead, we expect EBITDA (earnings before interest tax depreciation & amortization) to benefit from higher alloy steel plants, which will improve SAIL’s cash flows and strengthen its balance sheet. It’s net debt to drop to Rs 15,800 crore in FY22E and further to Rs 200 crore in FY23E.
SAIL continues to reap the benefits of higher steel prices as 4QFY21 EBITDA (earnings before interest tax depreciation & amortization) grew 21% QoQ, despite a wage revision impact. In the absence of significant capex, net debt declined further. With steel prices at a record high, SAIL is poised to post its best-ever EBITDA/t of ~INR20,000 in 1QFY22.
SAIL is the biggest beneficiary of improved pricing. Despite factoring in a conservative realization (~15% discount to spot) and higher coking coal prices (US$165/tonne) in FY22E, SAIL’s EBITDA to grow by over 100% YoY to Rs 27,000 crore. A further Rs 10,200 crore (Rs 25/share) fall in net debt to Rs 26,500 crore (1x of EBITDA) in FY22E on the back of higher operating cash flows.
Increasing volumes would continue to drive operational efficiency. Some short term pricing pressure on long products can be expected, the medium-term outlook remains positive as higher volumes would drive strong cash flow aiding further reduction in net debt. Approval from Jharkhand to sell iron ore will be an added bonus. Increased our volume and realisation assumption by 5% and 8% for FY22. Also, with debt reduction higher than expected, our target prices have increased from Rs 100 to Rs 161.
SAIL’s management announced a higher capex run rate with the onset of a new volume expansion program. The disparity in long product prices and government contracts vis-à-vis flat product prices is starting to show in muted quarterly realisation performance for SAIL and will only accentuate going forward. Employee costs are expected to be maintained YoY for FY21E. Capex has been guided up to Rs 8,000 crore provided execution happens. Significant deleveraging can happen if the steel prices sustain, yet headwinds seen to be building upon portfolio, costs, expansion capex.
(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)
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