SAIL –Accumulate- Prabhudas Lilladher
Impacted by lower-than-expected sales volumes and higher-than-expected employee cost associated with additional provisioning for employee-related benefits, SAIL reported PAT of Rs11.8 billion. On the same lines, EBITDA arrived at Rs17.4bn below PLe of Rs27.3 billion.
Management guided employee cost to be higher in the range of Rs78-79bn for FY11 against earlier guidance of Rs65 billion to provide for additional provisioning for employee benefits and shortfall in provisioning for wage revision. Hence, we cut our earnings EPS estimate for FY11 and FY12 by 17% and 11%, respectively to Rs14.5 for FY11 and Rs16.8 for FY12 to provide for higher employee cost and lower volumes.
Led by fully domestic focused operations, strong balance sheet to support ongoing massive expansion and modernisation program, decent valuations (P/B below 2x), huge potential to expand the capacity beyond its ongoing expansion programs in partnership or on its own backed by huge iron ore reserves and excess land already under possession, we maintain our ACCUMULATE rating on the stock.
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