Operational miss on lower realisation, higher cost: EBITDA was down 27% QoQ at Rs 1,160 crore (our estimate: Rs 600 crore) in 2QFY20 due to a 2% QoQ decline in realisation to Rs 44,883/t (our estimate: Rs 42,652). As a result, EBITDA/tonne declined 24% QoQ to Rs 3,684. Sales volumes were also down 3% QoQ to 3.1mt (our estimate: 3.2mt). SAIL reported a loss of Rs 520 crore at the PBT level and Rs 340 crore at the PAT level (our estimate: loss of Rs 1,000 crore).
Revenue was down 5% QoQ at Rs 14,100 crore (our estimate: Rs 13,600 crore) due to slightly lower volumes and realisations. Reported EBITDA declined 27% QoQ to Rs 1,160 crore, which included Rs 430 crore of revenue booked on higher price finalised for prior-period sales of rails to the Indian Railways. Excluding this benefit, EBITDA was down 54% QoQ to Rs 730 crore (our estimate: Rs 600 crore).
Sales volumes declined 3% QoQ to 3.1mt due to subdued market conditions. We expect volumes to recover in 2HFY20 as demand improves. Product spreads were flat QoQ at INR24,712.
For 2QFY20, we estimate revenue/EBITDA to decline 4%/39% YoY to Rs 330/Rs 29b. In 1HFY20, cash flow from operations was – Rs 2,110 crore due to an increase in working capital (higher inventories due to weak demand). FCF was at – Rs 4,200 crore. Reported debt stood at Rs 51,600 crore.
Weak steel prices to offset benefit of volume ramp-up. We expect sales volumes CAGR of ~8% to 16mt over FY19-21 as demand improves and the company ramps up capacity. SAIL’s average realisation in Oct’19 was down by ~Rs 2,000/t from its 2Q average, which will impact margins. We cut our FY20/21 EBITDA estimate by 28%/10% due to lower realisation. We value the stock at 6.5x FY21E EV/EBITDA at Rs 34/sh. Maintain ‘neutral’.