SAIL surprises with better cost controls

SAIL surprises with better cost controls
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First Published: Wed, Jan 27 2010. 10 07 PM IST

Updated: Wed, Jan 27 2010. 10 07 PM IST
State-owned Steel Authority of India Ltd (SAIL) reported better-than-expected results, thanks mainly to tight cost controls. Net sales fell 2.5% sequentially to Rs9,697 crore on the back of a 3.3% drop in volumes of saleable steel. But operating costs fell 4.6%, thanks mainly to a 14.8% drop in raw material costs. Also, based on the firm’s guidance on employee costs for the year, analysts were expecting an expense of Rs1,700 crore on that account. The reported amount was lower at Rs1,571 crore. This shortfall is expected to be made up in the next quarter.
SAIL’s shares, however, fell 3.7%, tracking the correction in the markets on Wednesday. The stock is now only about 20% lower compared to its peak in early 2008, although the outlook for the industry seems far more precarious.
Thanks to the recovery in demand and a sharp drop in operating costs, production of steel has risen considerably across the globe. As Credit Suisse India stated in a 30 November report: “We fear global production, excluding China, may cross the prior peak by March-April 2010. Along with the continuing overhang of Chinese exports, this may pre-empt a price recovery.”
Of course, the gloomy view of the sector is not shared by all, but even so the fact that the share trades 20% lower than its earlier peak is a cause of concern. In early January, the stock had risen to over Rs250, or just 6% short of its early 2008 peak. So things are now slightly better on the valuation front. SAIL is also better placed than its peers in terms of access to raw materials and a lean balance sheet.
Write to us at marktomarket@livemint.com
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First Published: Wed, Jan 27 2010. 10 07 PM IST