JM - Sail
JM - Sail
JM - Sail
SAIL
Estimate change
TP change
CMP: INR86 TP: INR80(-6%) Downgrade to Neutral
Rating change Net debt doubles; coal cost to rise | downgrade to Neutral
Revenue largely in line; EBITDA beat driven by marginal beat on ASP
Bloomberg SAIL IN
SAIL reported a weak but in-line quarter; while its revenue and EBITDA were
Equity Shares (m) 4,130
M.Cap.(INRb)/(USDb) 353.1 / 4.4 above our estimates driven by higher ASP. As expected, SAIL posted a net
52-Week Range (INR) 121 / 64 loss for the quarter due to higher costs.
1, 6, 12 Rel. Per (%) 0/-12/-30 Crude steel production fell 12% YoY and 1% QoQ to 4.3mt (in line). Sales
12M Avg Val (INR M) 3111
grew 33% QoQ to 4.2mt (in line) during the quarter.
Free float (%) 35.0
Revenue declined 2% YoY (+9% QoQ) to INR262b (in line). The 6% beat on
Financials & Valuations (INR b)
our revenue estimate of INR249b was fueled by ~5.4% ASP beat in 2QFY23.
Y/E MARCH 2022 2023E 2024E ASP for 2QFY23 stood at INR62,343/t (-1% YoY/-18% QoQ), 5.4% ahead of
Sales 1,035 1,049 970 our estimate of INR 59,166/t. The ASP improvement led to a sharp rise in
EBITDA 213 90 125 EBITDA/t, significantly higher than our estimate.
APAT 121 30 56 Adjusting for the inventory mark up of INR0.8b, adjusted EBITDA decreased
EBITDA Margin (%) 21 9 13
91% YoY and 64% QoQ to INR 6.5b. The company posted a loss of INR3.9b in
Cons. Adj. EPS (INR) 29 7 14
2QFY23 (v/s profit of INR43b YoY and INR7.8b QoQ).
EPS Gr. (%) 124 -76 89
BV/Sh. (INR) 131 136 148 For 1HFY23, SAIL’s sales/EBITDA/PAT stood at INR510b/INR30b/INR4b,
Ratios respectively. While sales grew 7% YoY, EBITDA/PAT plunged 78%/95%.
Net D:E 0.3 0.4 0.3 Net debt has risen substantially by over 2x to INR272b in 2QFY23 (v/s INR
RoE (%) 24 5 10 127b in Mar’22).
RoCE (%) 22 7 11
Payout (%) 30 28 15
Highlights from the management commentary
Valuations
Management expects FY23 production of 17-17.5mt and sales of 16-16.5mt
P/E (x) 2.9 11.9 6.3
P/BV (x) 0.7 0.6 0.6 The benefit of lower coking coal procured in Aug/Sep’22 will accrue in
EV/EBITDA(x) 2.4 6.3 4.2 3QFY23E. However, coal prices could rise in 4Q as the current spot prices
Div. Yield (%) 0.2 0.0 0.0 have moved up.
FCF Yield (%) 78.0 -9.9 14.3 Management expects debt to remain stable in 3Q and reduce marginally to
INR260-270b at the end of 4QFY23.
Shareholding pattern (%)
As On Sep-22 Jun-22 Sep-21
Valuation and view
Promoter 65.0 65.0 65.0
DII
SAIL trades at an inexpensive P/B of 0.6x on our FY23 and FY24 estimates.
9.4 8.9 12.5
FII 4.3 4.2 5.4 However, on EV/EBITDA, the stock trades at an expensive valuation of
Others 21.3 21.9 17.1 6.3x/4.3x on our FY23/24 revised estimates, respectively.
FII Includes depository receipts While its net debt has surged 2x in the last quarter, we note that the leverage
remains comfortable at 2.5x compared to the peak of 8.6x in the previous
downcycle.
We cut our FY23 EBTIDA/PAT estimates by 4%/13% led by higher-than-
expected coking coal costs. We downgrade the stock to Neutral with a
revised TP of INR80 (v/s INR88 earlier) mainly due to rising debt, valuing
the stock at 6xFY23E EV/EBITDA. While mounting debt and coking coal
prices are our key concerns that led to the downgrade, we note that the
valuation at 0.6x on FY23E P/B with net debt/EBITDA at 2.5x will provide
support to the stock and subsequently our Neutral rating.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
SAIL
Guidance:
Management expects FY23 production at 17.0-17.5mt and sales at 16.0-16.5mt.
Coking coal prices should be down by INR 5000/t (USD60/t) to INR 28,000/t in 3Q
Coking coal prices hike will be reflected in 4Q
Benefit of lower coking coal procured in Aug/Sep will benefit in 3Q.
Inventory Value is about INR 150b for finished goods and INR 120b for raw
material
Net debt increased by INR 90b in 1Q and INR 50b in 2Q. Current debt is about
INR 275b Expect debt to remain stable in 3Q from current level and reduce
marginally to INR 260-270b at the end of 4QFY23.
Wages should be around INR 28b per quarter
Pricing:
Flat product prices have been impacted due to fall in international prices
However, long product prices have not been impacted as secondary producers
have not reduced prices due to higher coal costs
ASP in 3Q may not improve significantly but at best could be at similar level
compared to 2Q
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SAIL
PLI scheme:
Head hardened rails and new profiles being proposed under the PLI scheme.
At the peak, the company is likely to produce about 200kt of head hardened rails.
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SAIL
Story in charts
Exhibit 1: ASP has come down from its peak; 5% above est. Exhibit 2: …but so has cost…
RM Cost/t Staff cost/t Others/t
ASP (INR/t) 80,000
0
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
1QFY20
2QFY20
3QFY20
4QFY20
1QFY21
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 4: Debt has increased in FY23 after massive
Exhibit 3: EBITDA/t to improve only in FY24E deleveraging in last two years
Net Debt (INR b)
534
EBITDA (USD/t)
451
449
410
366
348
280
180
177
173
229
214
184
177
141
165
115
107
111
99
94
77
70
27
64
57
57
56
0
FY16 -42
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
Source: MOFSL, Company Source: MOFSL, Company
Exhibit 5: EBITDA/t has likely bottomed out in 2QFY23 Exhibit 6: Capex will not reach previous peak (INR b)
EBITDA/t 97 92 Capex
89
63 65 66 60
54
39 44 35 34 40
19,728
16,395
12,241 14,145 0
8,881 9,196 7,295
4,518
1,740
2QFY21
3QFY21
4QFY21
1QFY22
2QFY22
3QFY22
4QFY22
1QFY23
2QFY23
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23E
FY24E
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SAIL
Exhibit 8: Valuation
Particulars UoM 2023E
Volumes mt 16.1
EBITDA INR/t 5,627
EBITDA INR b 90.4
Target EV/EBITDA(x) x 6.0
Target EV INR b 542.3
less: Net Debt (INR m) INR b 213.9
Equity value INR b 328.4
No. of shares o/s b 4.1
Target price (INR/sh.) INR 80
Source: MOFSL
29.0 1.1
30.0 1.0
0.8
20.0 0.6 0.6
14.4
0.5 0.4
10.0 8.9
3.3 0.2
0.0 2.2 3.7 0.0
Nov-12
Nov-17
Nov-22
Feb-14
Feb-19
May-15
Aug-16
May-20
Aug-21
Nov-12
Nov-17
Nov-22
May-15
May-20
Aug-16
Aug-21
Feb-14
Feb-19
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SAIL
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SAIL
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SAIL
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SAIL
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SAIL
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