Steel Authority of India (SAIL) reported EBITDA for 4QFY12 which was 25%/10% below Nirmal Bang's/consensus' estimates, respectively, on account of higher-than-expected raw material and other costs. The company reported forex gain of Rs7,246mn, which led to PAT being 5%/24% above their/consensus estimates, respectively. EBITDA/tn for the quarter stood at Rs5,776, down 23% y-o-y and 5% q-o-q. Nirmal Bang have lowered their volume estimates by 4% and 11% for FY13E and FY14E, respectively, due to consistent delay in expansion, but realisation assumptions have been increased by 3% each for the above years on the back of weakening rupee and firm steel prices in domestic market. This resulted in a 3% increase in their EBITDA/PAT estimates each for FY13E, while the same have been revised downwards by 13%/7%, respectively, for FY14E. Nirmal Bang retain their Sell rating on SAIL with a revised target price of Rs81 (12% lower than their earlier TP of Rs92), which is 13% lower than the CMP. Nirmal Bang also roll forward their valuation multiple to FY14.

Volume improves q-o-q, realisation jumps: SAIL reported a 3% y-o-y increase in steel volume for the quarter at 3.24mt, while it was up 25% q-o-q due to disappointing performance in 3QFY12. The company witnessed 9% y-o-y and 2% q-o-q increase in blended steel realisation at Rs42,259/tn on the back of improvement in global steel prices and a weakening rupee.

Costs surprise negatively, forex gain to the rescue: Despite the decline in coking coal prices, total costs/tn rose 4% q-o-q, primarily driven by 16% q-o-q increase in raw material costs/tn. Total costs/tn rose 16% y-o-y to Rs36,484/tn. Therefore, despite higher realisation, EBITDA/tn fell 23% y-o-y and 5% q-o-q to Rs5,776. SAIL reported forex gain of Rs7,246mn as compared to a loss of Rs4,663mn during 3QFY12. PBT before an exceptional item was down 28% y-o-y, but was up 15% q-o-q.

Other income drops sharply due to lower cash surplus: SAIL reported 47% y-o-y and 44% q-o-q drop in other income, largely due to deployment of surplus cash in capex. Total borrowing declined from Rs202bn at the end of FY11 to Rs172bn at the FY12, but cash surplus fell from Rs175bn to Rs64bn in the same period.