Will GoI bite the SAIL disinvestment bullet?

R. Yegya Narayanan
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Steel Authority of India Ltd (SAIL), while posting a marginal decline in income from operations in the third quarter of the current fiscal, has witnessed a steep decline in net profit during the quarter.

The company is among the PSU stocks in which the Centre is planning to divest part of its stake during the current fiscal. But the big question is whether the GoI will bite the SAIL divestment bullet after a rather tepid Q3 performance which may have an impact on its pricing.

Income, expenses

According to the unaudited results, the total income from operations fell to Rs 10,670 crore in Q3 of the current financial year from Rs 10,728.79 crore in the same period previous fiscal.

A sharp rise in other expenses to Rs 1,753.12 crore during the quarter (Rs 1,427.77 crore) saw its total expenses go up to Rs 9,936.60 crore from Rs 9,557.13 crore in the same period last year.

However, with a more than 40 per cent fall in interest earned to Rs 207.90 crore compared with Rs 370.65 crore, profit from ordinary activities before finance cost and exceptional items dived to Rs 954 crore from Rs 1,555 crore in Q3 of 2011-12.

Forex loss, tax liability

However a significant decline in forex loss at Rs 30.71 crore compared with Rs 466 crore in Q3 last year, cushioned the decline in profit before tax to Rs 701.62 crore (Rs 903.76 crore).

Though the tax liability remained virtually at the same level — Rs 273.24 crore in Q3 of the current fiscal against Rs 271.97 crore in Q3 last year, a higher deferred tax liability of Rs 55.92 crore saw the net profit slipping to Rs 484.30 crore (Rs 632.12 crore). The EPS was down at Rs 1.17 (Rs 1.53).

SAIL is among the stocks slated for divestment by the GoI during the coming week. At present, the Government holds 85.82 per cent stake in SAIL’s equity of Rs 4,130.53 crore.

Govt disinvestment

According to recent media reports, the Government was to take a decision on diluting 10.82 per cent stake in the company after it comes out with its Q3 results.

Even during last year, there were reports that there was some difference over valuation between the Government and bankers with respect to SAIL issue.

The reports quoting officials said after Q3 results, the investors could be presented with a better picture of SAIL. But today’s results would show that the financials are under pressure and it is a moot point whether the stock would fetch higher valuation that its current market price.

Price-Earnings ratio

The GoI was expecting to garner about Rs 4,000 crore. But with the stock quoting around Rs 81 today, it is not clear whether the issue could sail through if the pricing is stiff. The PE (price-earnings) ratio of the stock is about 10.

But some of the top steel picks by market cap like Tata Steel (7) and JSW Steel (8) trade in the same range in terms of PE ratio. It was probably Jindal Steel & Power, which gets a higher billing with a PE ratio of about 16. Hence, how much the valuation could be stretched in case of SAIL is not clear now.

Share price

The share closed at Rs 81.10 on the NSE today, post-results with a trading volume of 55 lakh shares.

That the stock had largely missed out the market rally during 2012 could be gauged from the fact that while its 52-week high of Rs 115.90 was reached on February 17, 2012, it dipped to its 52-week low of Rs 75.75 much later on September 5, 2012 and has given a bye to market rally post-reform initiatives taken by Finance Minister P. Chidambaram after the change of guard in the North Block.

(This article was published on February 12, 2013)
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