Steel Authority of India Ltd Q3 FY23 Earnings Conference Call Insights

Key highlights from Steel Authority of India Ltd (SAIL) Q3 FY23 Earnings Concall

Management Update:

• [00:07:34] SAIL said the company achieved its highest nine-month production performance from April to December 2023.

Q&A Highlights:

• [00:11:14] Amit Dixit at ICICI Securities asked about the quantum of rail price revision left. Anil Tulsiani Director Finance replied that SAIL has submitted a rail price revision to the CA Cost Organization for 2021 and 2022, and it is expected that SAIL will receive the benefits of this in the current financial year. The revision in price will be for around 1.1 million tons.

• [00:12:19] Amit Dixit of ICICI Securities enquired about the current utilization of wagon wheel capacity and if SAIL will be investing in a new facility. Anil Tulsiani Director Finance answered that SAIL has participated in the government’s tender for wheels and its current capacity is 40,000 per year. SAIL added it will expand this next year with some modifications to the plant.

• [00:13:17] Pinakin Parekh from JPMorgan asked what is the maximum amount of crude steel production SAIL can achieve currently, and the saleable steel volumes on an annualized basis if fully utilized. Anil Tulsiani Director Finance replied that SAIL’s capacity is 19 million tons of crude steel, and it’s expecting to produce more than 4.5 million tons in 4Q23.

• [00:14:41] Pinakin Parekh at JPMorgan queried about the outlook for borrowings and debt for FY23-24. Anil Tulsiani Director Finance answered that SAIL expects to spend around INR5,500 crores on capex this year, and between INR6,500-7,000 crores in the next financial year. Borrowings have been reduced and are currently at around INR28,000 crore levels, and expect it to come down by another INR3,000-4,000 crores by the end of this financial year.

• [00:16:16] Sumangal Nevatia with Kotak Securities asked about net debt as on 31 Dec., 2022 and reason for a sharp increase in last 9 months. Anil Tulsiani Director Finance replied that it’s about INR29,270 crores. And the reason for increase was due to increased coal prices and higher capex. Borrowings have since decreased by around INR2,000 crores this quarter.

• [00:18:20] Sumangal Nevatia with Kotak Securities asked what sort of volume or capacity additions are SAIL looking at in the next 3-4 years. Anil Tulsiani Director Finance answered that SAIL has a plan to expand its capacity by 3 million tons in the next 3-4 years, and then follow up with a 4.5 million ton expansion at the IISCO Steel Plant. SAIL is aiming for a 12-13 million ton expansion by 2030-2031.

• [00:19:57] Sumangal Nevatia with Kotak Securities queried about the NSR realization and coal cost movement expected in 4Q23 vs. 3Q23. Anil Tulsiani Director Finance replied that NSR has been improving in January and has stabilized somewhat in February, but it is too early to predict what may happen in March. The cost of coal for Jan. and Feb. will stay in line with Dec. costs, with a possible increase of INR1,000-1,500. In March, there will be an increase of around INR4,000.

• [00:21:03]  Aakash Goel from Tara Capital asked about reason for reduction in employee cost. Anil Tulsiani Director Finance said that it’s due to the retirement of 3,000 senior employees. The company is trying to reduce recruitment as much as possible and this trend should continue in the future. It is estimated that in a year, an additional 3,000-3,500 people will retire, resulting in further savings.

• [00:30:19] Ritesh Shah from Investec queried about SAIL’s current prevailing rate for long product prices and flat product prices and the average for the quarter gone past. Anil Tulsiani Director Finance said that in Jan., the long product prices are around INR56,000 and the flat product prices are around INR54,000. In 3Q23, the long product prices were around INR54,500 and the flat product prices were between INR54,000 and INR54,500.

• [00:36:58] Siddharth Gadekar from Equirus enquired that in terms of the 4Q guidance, what kind of sales volumes are expected in 4Q. Anil Tulsiani Director Finance answered that the inventory is 1.2 million ton, and the goal is to reduce it to less than 1 million ton by the end of the financial year.

• [00:43:25]  Falguni Dutta from Jet Age Securities asked that assuming coking coal and steel prices remain where they are, how do SAIL see Q1 margins directionally. Anil Tulsiani Director Finance replied that it’s expected to be flat.