Steel Authority of India Ltd’s (Sail) physical steel sales rose by only 3.7% from a year ago in the June quarter, and even an increase in steel prices doesn’t appear to have benefited it much.
The company’s per-tonne steel realization shows an increase of just 0.5% over a year ago. What saved the quarter for Sail was a decline in its raw material costs.
Sail’s revenue declined by 2.7% from a year ago to Rs.9,238 crore, while its operating profit improved to Rs234 crore compared with Rs89 crore. A sequential comparison is not possible due to the shift to Ind-AS accounting standards from the current quarter.
Although its operating profit has improved, an increase in depreciation and finance costs, and a decline in other income has contributed to a loss of Rs535 crore versus a loss of Rs248 crore in the year-ago period.
The substantial widening of its loss is what may have caused the 5.68% decline in its share on Friday.
Sail’s share has been gaining ground in the past three months to 9 September, and is up by 12.9% compared with a 21.4% increase in the BSE Metal Index. Although its operating margin has improved, it is not enough to cover the increase seen in depreciation and interest costs.
The scenario for steel companies had improved with the imposition of anti-dumping duty and minimum import price on steel imports. The months of July and August have seen some improvement in Sail’s output, on a sequential basis. A gradual pick-up in sales will give investors confidence that its output can reach higher levels, justifying the investments it is making in adding to steel capacity.
The outlook for domestic steel prices has improved with the government lending support and global prices rising. Domestic demand remains a worry though. In April-August, steel consumption rose by only 1.3% over a year ago, according to data from the Joint Plant Committee. However, an increase in exports and a decline in imports is supporting an increase in domestic production.
Investors will be happy even if Sail’s output does not increase by much but is able to report a much higher jump in profits. Private sector steel companies have been able to report a much better performance and investors are better off taking their chances with them, rather than with Sail.