Companhia Siderurgica: Expect Better Times

Companhia Siderurgica (SID) might be facing weakness in the steel market, but the company is focusing on improving efficiency in its operations. Let’s take a look.

Focusing on operational improvements

Companhia is keenly focused on the highly efficient businesses and delivering superior profitability during the first quarter strategically employing 407 million euro and about 123 million in line, particularly linked to the expansion of Casa de Pedra, nearly 121 million to be spent in steel industry, primarily in achieving operational excellence and banking of the coke battery, 73 million for logistic and 90 million in capacity for cement.

For steel, Companhia achieved net volume of 1.4 million tonne mainly due to the company’s sharp focus on the domestic market.
Moving ahead, Companhia is focused on enhancing its sales abroad with approximately 34% in subsidiaries abroad, 63% of sales in the domestic market, and 2% exported directly. Actually, total revenue for the company grew 4% compared to the fourth quarter of 2014 especially due to growth in the volume sold.

The planned deployment of capital by Companhia in expanding its key businesses having significant growth potential and strategic exploration of domestic, abroad and other markets for producing and selling the steel products is forecasted to strongly position the company on the growth path, delivering outstanding top line and bottom line growths.

Going forward, Companhia is focused on limiting its expenditures and has created a multi-disciplinary group targeted on lowering the production costs that include board, freight and extraction expenditures. Therefore, these focused cost-cutting initiatives have enabled Companhia to lower the production cost by 21% and hold its average price below 16% during the same period.

In all, Companhia seems extremely well-positioned to capture the huge steel markets abroad, supported by its solidifying balance sheet with the company’s cost-cutting initiatives generating positive results.

Strong mining assets will be a tailwind

The mining assets of Companhia, including the Engenho and Casa de Pedra reserves, will drive its financial performance in the long run. The ore reserves for the company have improved significantly to 3.021 million tons in 2014, compared to just 1.631 million tons of reserves in fiscal year 2007 that depicts the expansion of the company’s mining activities coupled with the advanced drilling technologies being employed by the miner over the years.

Therefore, Companhia delivered nearly 235 million tons of total ore over a period from 2006 till 2014, representing about 1.625 million tons or over 100% production increase over the years with 2014 reserves of 3.021 million tons against 2007 reserves of 1.631 million tons only.

The quarterly investments by the company is distributed across several key verticals including, mining with 30% share, 30% investments in Steel, 22% in Cement and the remaining 18% of the net investments into Logistics. Importantly, Companhia has well-diversified its investments to capture growth across each of the mentioned key market segments.

The year-over-year increase in the quantity of ore from the reserves being exploited by the Companhia in addition to the well planned distribution of the capital across the key growth segments depicts the superior growth and market share expansion strategies of the company, allowing it to successfully beat the rising competition and emerge strongly.

Conclusion

Thus, there are a number of positives about CSN that investors should not ignore since the company is well-placed to do well on the back of its operational improvements. So, it might be a good idea to go long CSN as it can get better despite weakness in recent quarters.
Published on Oct 27, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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