Steel Authority of India
Steel Authority of India
Research: Credit Suisse
Rating: Neutral
CMP: Rs 226
Credit Suisse maintains ‘neutral’ rating on Steel Authority of India (SAIL). The company reported Q3 results in line with expectations, with lower sales volumes offsetting better-than-expected realisations. 9M FY08 production has outpaced sales by 1 million tonnes (mt).
SAIL has 1.6 mt of finished goods inventory. In the past, the fourth quarter has typically seen a surge in sales. This should help the company meet FY08 estimates. The company’s employee costs were surprising, mainly due to a Rs 400-crore provision for gratuity and leave encashment. There will be another Rs 328-crore impact in Q4. The management expects a 20% increase in employee costs due to the Sixth Pay Commission’s recommendations.
There is some potential for tightness in coking coal availability in March ’08 due to flooding in Australia, but the company has asked Coal India and its American supplier to compensate for this. SAIL has received approval to buy 90% coking coal on long-term contracts (80% earlier), reducing its dependence on spot markets. 30% of the orders have been placed for the company’s Rs 53,000-crore expansion
