Steel Authority of India (SAIL) reported its Q1FY24 earnings, and here’s an overview of the key highlights and analyst comments:
- EBITDA Performance: SAIL’s Q1FY24 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) stood at INR 16.5 billion, which was 38% higher than the estimate provided by analysts. This better-than-expected performance was mainly attributed to stronger realizations.
- EBITDA per ton: SAIL’s EBITDA per ton, a measure of profitability, was INR 4,250, which exceeded the analyst estimate of INR 3,074. This suggests that the company managed to generate higher EBITDA from each ton of steel produced.
- Coking Coal Prices: The price of coking coal, a key input for steel production, increased by a modest USD 10 per ton compared to the previous quarter.
- Borrowings and Working Capital: SAIL’s borrowings increased by INR 37.5 billion, primarily due to working capital accretion. Working capital refers to the funds needed to cover day-to-day operational expenses.
- Capex Plans: SAIL’s next round of 15 million tons per annum (mtpa) brownfield capex (capital expenditure) is expected to gather pace. Brownfield capex involves expanding or upgrading existing facilities.
Analyst Recommendations:
- AXIS DIRECT: The analysts at AXIS DIRECT have downgraded their rating on SAIL from “BUY” to “HOLD.” They state that given the recent price run-up, they don’t see much upside potential from the current market price. Their target price (TP) suggests a 5% upside, which is considered limited based on their analysis.
- BOB CAPITAL MARKETS LTD.: BOB CAPITAL MARKETS LTD. highlighted that SAIL’s EBITDA per ton dropped by 42% year-on-year to Rs 4,200 per ton. This decline reflects the impact of high operating leverage, which indicates that the company’s profitability was negatively affected due to high fixed costs.
- ICICI SECURITIES LIMITED: Steel Authority of India’s (SAIL) Q1FY24 EBITDA at INR 16.5bn was 38% ahead of our estimate mainly due to better-than-expected realisation. Key highlights: 1) EBITDA/te at INR 4,250 was ahead of our estimate of INR 3,074; 2) coking coal price was up a mere USD 10/te QoQ; 3) borrowings increased by INR 37.5bn mainly due to working capital accretion; and 4) next round of 15mtpa brownfield capex to gather pace.
In summary, SAIL’s Q1FY24 earnings exceeded analysts’ expectations, with better-than-expected realizations driving its strong EBITDA performance. Despite this positive performance, some analysts have downgraded their recommendations due to limited upside potential based on current price levels. Additionally, the impact of high operating leverage led to a decline in EBITDA per ton, indicating profitability challenges.
Read the detailed report here.
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