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SAIL: Mixed performance; going forward EBITDA/tonne to decline on rising coking coal cost…

What’s Buzzing:

SAIL reported a mixed performance in Q2FY22, wherein topline came in line with our estimate, while EBITDA and PAT came in below our estimate. EBITDA came in lower than our estimate of back of elevated employee costs. Employee costs during Q2FY22 was at Rs.3332 crore (up 20% QoQ).


For Q2FY22, SAIL reported sales volume of 4.28 million tonne (MT), up 2% YoY and 29% QoQ, in line with our estimate of 4.30 MT. For Q2FY22, for standalone operations SAIL reported topline of Rs.26827 crore (up 59% YoY and 30% QoQ), broadly in line with our estimate of Rs.26563 crore. For the quarter, SAIL reported EBITDA/tonne was at Rs.16395/tonne compared to our estimate of Rs.18000/tonne (Q1FY22 EBITDA/tonne was at Rs.19728/tonne ). Standalone EBITDA for the quarter was at Rs.7017 crore lower than our estimate of Rs.7650 crore. During the quarter EBITDA margin was up 1493 bps YoY but down 564 bps QoQ and was at 26.2% compared to our estimate of 28.8% (11.2% in Q2FY21 and 31.8% in Q1FY22). Ensuing standalone net profit for the quarter was at Rs.4304 crore, up 12% QoQ (our estimate of Rs.4677 crore). 

Our Perspective:

Over the last few months coking coal price has been on a rising trend. For SAIL, coking coal consumption cost has increased from Rs.11480/tonne in Q1FY22 to Rs.15150/tonne in Q2FY22. Coking coal cost is expected to further rise to ~Rs.23000-25000/tonne in Q3FY22. As against such steep rise in coking coal cost, in October 2021 SAIL has increased price of long product by Rs.3500/tonne, while the increase in flat prices is Rs.1700/tonne. This indicates that, going forward, on the back of sharp rise in coking costs, SAIL’s EBITDA/tonne is likely to witness a downward trend from Q2FY22 level.