Title: Weighed down by steel slowdown, there’s no relief in sight for SAIL
- Saleable steel production of about 3.65 mt in the quarter was quite tepid compared to 3.61 mt a year ago
- The company’s first-quarter (Q1) performance was subdued, with revenues sliding 6.8% year-on-year
Steel Authority of India Ltd’s (SAIL’s) June-quarter figures have been muted and could drag down its already beaten share price. The stock hit a new 52-week low of ?37.70 on 8 August after a steady decline for the past year.
The company’s first-quarter (Q1) performance was subdued, with revenues sliding 6.8% year-on-year.
A sharp slowdown in domestic steel demand has severely curtailed sales realizations. This is despite the fact that SAIL’s sales volumes were about 3.3 million tonnes (mt) in the first quarter, similar to the year-ago period.
A sluggish ramp-up in steel production is a serious concern. In Q1, the company produced about 4.32 mt of hot metal, against 4.27 mt a year ago.
Saleable steel production of about 3.65 mt in the quarter was quite tepid compared to 3.61 mt a year ago. This could further weigh on the SAIL stock.
Besides, higher raw material prices and rising expenses give rise to persistent concerns. Raw material costs increased from 48.4% of revenues a year ago to 54.8% in Q1 FY20.
Besides, SAIL has been unable to notably bring down other expenses, while its operating performance has wilted. The Ebitda margin fell sharply to 10.7%, compared to 16.2% for the year-ago period. Ebitda is earnings before interest, tax, depreciation and amortization.
The management, though, said that the government’s planned investments in steel-intensive sectors can be positive for the industry in FY20.
A sticking point with the market is SAIL’s heavy dependence on steel prices. A poor product mix also leaves little room to improve realizations.
“For the last five years, the management has been talking of lower cost of production (CoP), driven by operating leverage and improved techno-economic parameters. On the contrary, it has consistently disappointed on both CoP and production," said Prabhudas Lilladher Pvt. Ltd in a note to clients.
Besides, the industry’s woes have been compounded due to the persistent pressure on steel prices, the decelerating automobile sector and scant global growth.
This could pile pressure on the SAIL stock, which is nudging the five-year closing low of ?34.45 seen on 12 February 2016.