SAIL - A really long term opportunity


(SBT) #21

SAIL has reduced its manpower from over 100,000 in 2010 to about 77,000 now. Further reduction is going on.


(vinaynagori) #22

This quarter results should lay the foundation for the next upmove.


(vinaynagori) #23

sail results.pdf (824.0 KB)


(vinaynagori) #24

SAIL Turnaround has begun it seems.Results better than expected. SAIL is no longer that PSU mentality company.Things have changed drastically internally. NCLT craze for steel companies , governments goal to recover NPAs and tremendous focus on infra are signals for the future expected demand.


(SBT) #25

New blast furnace inaugurated at BSP on 14th by PM Modi. I have first hand information from a mine official that production at mines are being pushed up.
EBITDA is likely to see a good rise in coming quarters. The present chairman has guided that the profits will be used for repayment of debt on priority basis. Once the interest outgo starts reducing , the bottom line will see a significant growth.
It is not unusual for steel companies to have EV of $1500/Te (= Rs1500 X 65 = 97500 /Te) during good times. This translates to nearly Rs 1.95 lakh Crore for 20 million Te capacity.
There is huge upside left in this counter if the tailwinds continue.
Regards


(saumya) #26

China steel price boost due to power cut
https://pbs.twimg.com/media/DkAL__gUwAEY7jx.jpg:large


(1.5cr) #27

(saumya) #28

SAIL an almost perfect cyclic candidate

End User industries

  1. Infra and construction 62% (Sagarmala , bharatmala ,affordable housing, Defence etc +ve)
  2. Engineering & Fabrication 22%
  3. Auto 10%
  4. Transport 3%
  5. Packaging 3%

Possible Investing rationale

  1. Least efficient steel producers in India
  2. Highest employee cost and coking coal cost
  3. Debt 44000cr EV=76000cr
  4. Margin expansion +debt reduction + Employee cost constant + steel cycle turning= Rerating possible
  5. Can expand Brownfield
  6. Higher share of long products in product portfolio which are less prone to dumping
  7. Industry consolidating+Operating leverage/reducing costs+Large undervaluations
  8. SAIL+JSW+TATA+JSPL+RINL=55% capacity
  9. Captive iron ore mines provide security against iron ore price increase
  10. Supply is going to be constant as capacity expansion is slowing down and nobody wants to lend to steel companies and big 2 are focus on NCLT acquisitions
  11. Completed the modernisation of plant capacity increased from 14.5 to 21MT
  12. Protected via GOI policy via import duty also supply side china capacity has fallen or cost have rises due to enviro norms and labor
  13. SAIL capex is getting over with value added product being added and with large share of long products they already protected as long distance import are difficult
  14. GOI bound to protect sector as they have to save PSU banks and another steel fiasco
  15. Cost of employee is reducing or constant via VR scheme in mid term
  16. They have captive iron ore mines and hence secured from iron ore prices
  17. Valuation low EBITDA/TON relatively and absolutely
  18. Interest cost going to go down with improved utilization and cash flows as expansion is almost done
  19. Cash flows good
  20. Depreciation has increased more than sales which is impacting profits though cash flows good
  21. SAILs triggers- operating leverage, deleveraging on balance sheet, employee cost staying constant and increase in realisations.
  22. Valuation wise most -ves priced in.
  23. Technological upgradation almost done
  24. Modernization and capex program almost complete
  25. Trying to reduce cooking coal cost and invested heavily in that
  26. Changing product mix and share of semis to go down
  27. Valuation Mcap33000 cr , EV 78000cr but replacement costs is 130000
  28. China product cuts , cost going up , inventories falling and export going down.
  29. JSW trade at close to replacement cost while TATA has international operations

Macros(both +ve and -ve factors)

  1. Trade war causing Japan and Korea to dump steel meant for usa and even Europe
  2. India high economy growth and capex cycle revival could boost demand
  3. Steel use being replace by lighter material like aluminium plastics
  4. Steel consumption as % of GDP could go down due to more use of high grade steel.
  5. NCLT resolution=PSU lending again=Economy grow=Steel consumption increase
  6. Emerging trend like prefab could boost consumption plus steel crash barriers
  7. Farm mechanization and rural consumption could provide boost

RISK

  • Any forced acquisition of NCLT could be risk
  • Fail to ramp up production
  • Since Japan and Korea enjoy duty reliefs under India’s Free Trade Agreements with them, the imports from these countries are 10% cheaper than domestic steel; the post-Trump-tariffs situation has led to imports from these countries to accelerate further.
  • Will continue to trade at below replacement costs

Quarter1 Fy19 trends

  • QoQ sales grew22.42%
  • Salable steel production increases 13% Qom
  • Coke rate improved by 3%
  • Blast furnace productivity improved 2%
  • Specific energy consumption improved by 3%

Disclosure: More than 5% of portfolio. This is my own view of the business and is not a buy/sell recommendation and I may be completely wrong in analysis and I am not a SEBI registered analyst.I might be biased cause I live in Steel township bhilai.


(Raj) #29

https://sail.co.in/company/board

In spite of being one of the navaratnas SAIL does not have a full time chairman since last couple of months now. One of the secretaries have been given additional charge as Chairman of this steel behemoth. A company whose modernization has been delayed by several years and with huge cost over runs is without a full time captain.

This shows how serious successive governments are when it comes to PSUs. I hope people would have built their discount accordingly.

Regards,
Raj
Disc: Sold my holdings some time back


(1.5cr) #30

SAIL trades at 3800rs or so ev per ton. Bhushan steel in NCLT was aquired for 6800rs ev per ton.
That says alot, considering SAIL has 21.4mt capacity constitutes to 16% of steel prodcution in India and is a fully integrated steel player with captive iron ore mines. So yes it all seems built into the valuations at this point as it is trading at ~50% discount to a defunkt NCLT steel company.


(saumya) #31

India gov might consider raising import duties on certain steel products upto 15% https://m.economictimes.com/industry/indl-goods/svs/steel/india-considers-raising-import-duty-on-steel-to-support-rupee-document/articleshow/65867169.cms


(saumya) #32

SAIL raise price 2nd time in sep


(SBT) #33

I tried collecting information about imported coking coal prices but could not find any reliable source. My only understanding is that it has remained soft. Can anybody throw some light on it. If prices fall then it could be another game changer for SAIL. The Co imports nearly 12-13 mT out of its total need of 15 mT.
Regards


(saumya) #34

The impact would be higher for induction furnace/ electric arc furnace producers whose cost of production rose 11-13% during the first half of fiscal 2019 compared with 4-6% for blast furnace/ basic oxygen furnace producers (cost rise only attributable to rise in iron ore prices). However, steel prices saw a bigger increase (15% rise in long steel prices) over this period, riding on healthy growth in domestic demand, and this has helped offset any impact on profitability


(1.5cr) #35

If Im not wrong all of SAIL’s iron ore requirements are met through captive mines so they do have an advantage on that front…


(parkhi_nazar) #36

Yes, SAIL uses 100% captive ore. Coal is another matter…

Discl: Invested


(1.5cr) #37

Coking Coal more than 80% is imported. Bulk coming from Australia if im not wrong. But any hike in coal prices should be passed on through rise in prices…


(parkhi_nazar) #38

Tata Steel, if I remember, has both captive iron ore and coal. These things won’t matter so much when the steel cycle itself turns - everyone will make money, which is what we are hoping.

I also have shares in a lignite miner, so have a hedge to that extent.


(Raj) #39

Even SAIL has captive coal mines but most of the coking coal is imported in India as the quality of coal available locally is not suitable for use in making coke.
Regards,
Raj