India’s second largest steel company Steel Authority of India (SAIL) has announced its second quarter (ended September 2010) results today. The company has reported a net profit of Rs.1,090 cr as against Rs.1,660 cr last quarter, down 34.34% on year-on-year basis (YoY). Net sales jumped 6.63% to Rs.10,603 cr from Rs.9,944 cr (Year on year basis). Also, Earning before interest, depreciation, tax and amortisation (EBIDTA) declined at 15.68% versus 23.8% (YoY) and 20.18% (QoQ) respectively, while market expectation was at 17%. Margin was lower than expected due to higher coking coal prices & increase in wage. Coking coal has increased by 76% to USD 225/tonne. Production increased to 3.17 MT versus 3.08 MT (YoY) and 3 MT (QoQ). hence, the numbers were below expectations.
In a press conference today, the following was said by company’s management:
-Our net profit was down, due to rise in coking coal prices.
-Total sales numbers ware overall good and as we expected.
-This quarter, average coking coal was priced at USD 225/t versus USD 128/t (YoY)
-We have plans to spend Rs.70,000 crore on modernisation.
-We expect to cross Rs.12,254 crore FY-11 capex.
-This quarter(Q2) sales were at its, highest-ever in quarter.
-Our FPO should hit markets by January/February.
-Global steel prices are likely to be stable.
Our Trading Analysis: We have seen the entire steel sector ralling on strong appreciation on dollar, from november we will see a cooldown in this rally. Sail has been a very selective stock for most of the fund amangers. As per our analysis, We see SAIL to trade near 185 to 195, this can be taken as a buying opportunity, for target 224 / 252. Stop loss should be placed at Rs.180 levels.