Steel Authority of India (SAIL) Ltd. share price target

We see Steel Authority of India (SAIL) as the best play on higher steel prices as it: 1) is backward integrated with captive iron ore, 2) has a higher operating leverage due to high conversion cost, and 3) has a higher financial leverage. With limited capex, higher pricing should drive significant deleveraging and boost equity value. We estimate net debt to decline by INR232b (INR56/sh, 76% of CMP) over FY20-23E to INR305b. We also expect higher dividend payouts going forward (implying ~5% yield), supported by strong FCF of INR19/sh (25% yield). We are raising our FY22E/FY23E EBITDA estimate by 34%/37% and TP by 28% on expectation of higher realization and volumes. The...

SAIL reported remarkable turnaround in its profitability for Q3FY21, beating our and street profitability forecasts. Its EBITDA/tonne jumped 4x YoY to Rs12,235 as realization increased 11% YoY to Rs44,737/tonne. Its EBITDA increased nearly 4x YoY to Rs51 bn led by higher realizations and lower coking coal costs. Interest cost decreased by 21% YoY to Rs6.7 bn. Net profit was lower than our forecast by 37% at Rs13 bn due to higher than expected tax rate at 65%. Its net debt fell to Rs440 bn as of December...

SAIL's result highlights strong gains from higher steel prices in the business model 3QFY21 EBITDA was up 147% YoY to INR50.8b, the highest ever. Net debt also fell sharply by 12% QoQ to INR443.0b. Spot steel prices are ~INR7,000/t, above the 3QFY21 average, which should drive 24% QoQ growth in EBITDA in 4QFY21, even after factoring in wage...

SAIL is a holding company. The company manufactures flat products such as hot rolled (HR) coils, HR plates, cold rolled (CR) coils, pipes so on.

SAIL's Q1FY21 net sales was in-line with street estimate while its net loss was lower than street forecast. Its net sales fell 39% YoY to Rs91 bn. Although its operations resumed in second half of the quarter with limited workforce and disrupted supply chain, the imposed restrictions adversely impacted its sales volume and realization in Q1FY21. Volumes declined 32% YoY to 2.2 mn tonnes and realization fell 10% YoY to Rs41,216/tonne. SAIL's EBITDA loss stood at Rs4 bn due to sharp fall in net sales. SAIL reported a net loss of Rs13 bn in Q1FY21. We broadly maintain our FY21/FY22 estimates. We continue to value the stock at an...

SAILs 1QFY21 result was weak, as expected, with EBITDA loss of ~INR4.0b posted due to weak domestic demand and prices. SAIL guided for improvement in longs steel prices, led by demand In 2QFY21, raw material cost is likely to benefit from decline in coking coal prices. SAILs gross debt stood at INR544b at 1QFY21-end; however, it declined to INR498b at Aug-end owing to improved sales and liquidation of inventory. With improved pricing, lower coking coal costs, and better operating leverage, we expect SAIL to record EBITDA/t in excess of INR6,000/t in 2QFY21. As a result, SAILs finished steel inventory, which stood at 1.65mt in Jun20, declined to 1.23mt at Aug-end. In 1QFY21, SAIL sold 2.2mt of steel, of which exports stood at 0.5mt. SAIL guided for improvement in longs steel prices, led by demand improvement INR10,800/t in Aug20.

SAILs third quarter result reflects the challenges faced by industry, with EBITDA/ton down 69% YoY at INR2,439 due to a sharp decline in steel prices. We expect sales volume CAGR of 6% over FY20-22 as demand improves and capacity ramps up. Operating leverage benefits from higher volumes and better steel prices are likely to lead to improved margins. Coking coal cost is not expected to decline in 4QFY20 as price has moved up to USD150/t currently; there is a two-month lag in realization of spot prices at Based on FY19 iron ore production of 28 MMT, SAIL can sell up to 7 MMT (25% of 28 MMT) iron ore in the merchant market in FY20. which is one of SAILs largest customers, has had budgetary constraints, resulting in higher receivables and slower-than-expected deleveraging; dues from IR are at INR37b v/s normal level of INR8-10b.

We are seeing Steel Authority of India Ltd. to emerge as strong winner on the back of strong expectation of revival in domestic demand growth across Infrastructure space backed by government spending and initiatives. Permission from government to sell 25% of Iron ore production of previous fiscal and iron ore fines accumulated as waste over past 5-6 decades to add ~10% to its EBITDA. US-China trade agreement is expected to revive metals. SAIL is expected to sail with the wind from iron ore mine lease expiries and uptick in steel demand to boost its profits and reduce leverage. A major turnaround in SAIL with favorable scenarios building in is expected to unlock great value for its stakeholders. Iron ore fines are turning into Gold' for SAIL: We expect SAIL to be major beneficiary of Government relaxation to sell 25% of previous FY iron ore captive production along with sub-grade iron ore fines that are accumulated over past half century on expectations of scarcity of material due to lease expiries of iron ore mines in Odisha. The company has 70MnT of sub-grade iron ore with average quality of 59% Fe content and expects to sell off these...

3.2mn (PLe: 3.4mn) t. Realisations rose 1.7% QoQ/Rs740 (6% YoY/Rs3,050) to Rs45,075 above our estimate of Rs44,210. Cost/t rose 3% QoQ/Rs1,325 (flat YoY) at Rs40,745 (PLe:Rs40,630). Impacted by lower scale, EBITDA/t fell 9% QoQ (38% YoY) to Rs4,870 (PLe:Rs4,030). Hence, EBITDA fell 29% QoQ (39% YoY) to Rs15.8bn, ahead of our estimates of Rs13.6bn. Due to better than expected margins, PAT came above our estimate at Rs688mn (PLe: loss...

EBITDA declined 29% QoQ (-39% YoY) to INR15.8b (our estimate: INR17b) in 1QFY20 due to lower sales volumes (3.2mt v/s our estimate of 3.9mt). EBITDA per ton was down by INR490 QoQ to INR4,869 owing to operating deleverage/lower fixed cost absorption. Adj. PAT declined 85% QoQ to INR0.7b,...