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Result Synopsis

SAIL’s Q2FY24 earnings were above the consensus estimates, majorly on the back of better than expected realizations and higher sales volumes. The company benefitted from the falling coking coal prices during the previous quarter and stable domestic steel prices. On the volumes front, after a drop in Q1FY24, the company had sales of 4.77 mt for Q2FY24, a 23% rise QoQ. We see the second half of the current financial year to cause some dent to the company’s earnings, majorly on the back of rising coking coal prices and the steel prices still being under pressure. On the capex front, the management has provided a guidance of incurring Rs 5,500 crores of capex for this year which includes Rs 2,000 – 2,500 crores of maintenance capex and the remaining for expansion projects and debottlenecking at the current capacities. In addition to that, the company’s debt stands at Rs 25,490 crores, which is a big relief from Rs 29,414 crores during Q1FY24. However, we believe with the firm’s upcoming capex phase of brownfield expansions can again elevate its debt levels on the back of unfavourable macro-environment for the industry. In terms of the operational performance, the company reported a crude steel production of 4.80 mt and sales of 4.77 mt. On the cost front, the company is expected to see a cost inflation on the coking coal prices which have been northwards of $310/t over the past few weeks, the impact of which will be seen in the upcoming quarters and majorly in Q4FY24. We maintain our rating on SAIL as a REDUCE as we believe that the debt levels, no additional capacity in the near future and the elevated coking coal prices are a cause of concern for the near future. We value SAIL at 5xFY25E EV/EBITDA to arrive at our target price of Rs 85/sh.

Result Highlights

* Revenue from Operations for the quarter stood at Rs 297,121mn (vs our estimate of Rs 242,250mn), reporting a 22% jump compared to Q1FY24 and a 13% jump on a YoY basis.

* EBITDA margins came in at 14% (vs our estimate of 9%) as compared to 9% / 4% in Q1FY24/Q2FY23 respectively. Consolidated absolute EBITDA stood at Rs 40,125mn, rising 90% from Q1FY24 and 255% from Q2FY23.

* Net Profit for the company came in at Rs 13,056mn (vs 2,125mn during Q1FY24) beating consensus estimates strongly.

* On the realizations front, the company sustained its Realization/t at Rs 62,289/t (vs Rs 62781/t in Q1FY24) despite the falling steel prices. EBITDA/t improved to Rs 8,431/t as compared to Rs 5,445/t in the previous quarter.

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