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Monday, May 2, 2011

Stock Analysis of SAIL - Buy Stocks for long term

Stock analysis of SAIL's 4Q FY2001 results released recently.

SAIL’s net sales declined 0.1% Y-OY to Rs 11,945cr in 4Q FY2011. This is below stock analyst's general estimates of Rs 13,307cr. The decline in net sales was modest but net profit declined 27.7% Y-O-Y to Rs 1,507 cr. Important reasons being increase in prices of key inputs (coking coal) and rising human resources costs.

The stock has witnessed it's 52-week high of Rs 234. It has corrected from this year high stock price to current price at Rs 160. It is a significant correction for blue chip stock like SAIL.

SAIL's 4Q FY2011 financial result highlights:
  • Net sales declined 0.1% Y-O-Y to Rs 11,945cr in 4Q FY2011 well below stock analyst's estimates of Rs 13,307cr. The company produced saleable steel of 3.43mn tonnes (+5.0% Y-O-Y) during the quarter.
  • EBITDA decreased 24.4% Y-O-Y to Rs 2,340cr, while EBITDA margin declined 631bp Y-O-Y to 19.6% due to increase in prices of key inputs (mainly coking coal) and rise in staff costs.
  • Net profit declined 27.7% Y-O-Y to Rs1,507cr, slightly below our estimate of Rs1,566cr in 4QFY2011. For FY2011, its net profit declined 27.7% Y-O-Y to Rs4,881cr mainly on account of weaker demand of flat products and increase in staff expenses (+40.8% Y-O-Y).
  • The company spent Rs11,280cr in FY2011 (+6% Y-O-Y) for expanding capacity at its existing plants. The company plans to spend capex of Rs14,300cr in FY2012 mainly towards expanding its capacity and modernizing its existing plants.
  • As of March 31,2011, the company’s debt and cash balance stood at Rs20,162cr and Rs17,000cr, respectively.
Stock Valuation
The stock is available at P/E of 12 and price to book value ratio of 1.98. These valuations are reasonable and stock looks undervalued although not cheap. Commodity prices (like coking coal) for key input for business are expected to ease in future. SAIL stock is at attractive valuations and one may buy stocks of this large cap blue chip company foe long term investing.

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