One-off gains boost Q4 EBITDA, on adjusted basis, still better
* SAIL reported higher-than-expected revenue and EBITDA despite several adjustments pertaining to one-off gains on account of revaluation of slag dumps, slime dumps and low grade iron ore inventory fines.
* Crude steel Production stood at 4.3mt (yoy/qoq: -1%/+7%), in line with our estimate of 4.16mt. Sales came in at 3.74mt (yoy/qoq: -9%/-9%), largely in line with our estimate of 3.63mt. Adjusted revenue (prior period adjustments at Rs162.1bn (yoy/qoq: -12%/+2%) was marginally better than our estimate of Rs150.8bn.
* Adjusted ASP stood at Rs43,293/t (yoy/qoq: -3%/+12%), compared to our estimate of Rs41,588/t. We believe that the improvement in the ASP is largely driven by higher sales to Indian Railways and other long-term customers, which has offset the slightly higher proportion of semis (from 19% in Q3 to 20% in Q4).
* Reported EBITDA was Rs64.5bn. Total adjustments to EBITDA are: (a) revaluation of low grade iron ore fines: 43mt valued at Rs4.12bn implying a price of Rs959/t for the ore dumps; (b) revaluation of slag dumps and slime dumps across major plants: Rs0.7bn; and (c) marginal reduction in the finalized Railways contract price for the period FY16 to FY19 in comparison to benefit already taken during 9MFY20: Rs37mn.
* Adjusting for these, the company reported EBITDA of Rs14.2bn (yoy/qoq: -36%/24x), higher than our estimate of Rs10.8bn. Adjusted EBITDA/t stood at Rs3791/t (yoy/qoq: -29%/+27x) vs. our estimate of Rs2979/t. The EBITDA beat was driven by Rs1700/t higher than estimated ASP. PAT for the quarter stood at Rs26.5bn (yoy/qoq: +4.6x / Rs3.4bn loss) vs our estimate of Rs1.12bn.
* SAIL made provisions in the P&L on account of diminution in value of inventory to the tune of Rs7.7bn during the quarter, which included (a) Rs4bn for finished/semi-finished goods; (b) Rs0.4bn toward raw material and (c) Rs3.3bn toward write-off taken on low grade iron ore fines, which they have valued at a gross value of Rs42bn and adjusted in the cost of RM during the quarter.
* Despite several one-offs in the result, we believe that the core results have surprised us positively especially on the ASP front, which was Rs1,700/t higher than our estimate and reflected in higher than estimated EBITDA/t by Rs812/t.
* However, we note that Q1 could be a new low for SAIL in recent times, given the triple whammy of reduction in ASP, volumes and product/geography mix. We have a Sell rating on the stock currently. SAIL has net debt of c Rs512bn as of March 31, 2020.
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