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

We maintain a BUY rating on the stock and value it at 4.0x FY24E EBITDA to arrive at a target price of Rs 125/share (Rs 150/share earlier), implying an upside of 21% from the CMP.

We initiate coverage with a BUY rating, and in line with its 3Y average, value the company at 4.0x FY24E EBITDA to arrive at our 1 year forward target price of Rs 150/share, implying an upside potential of 44% from the CMP.

This quarter was impacted by several factors, seasonal and non-seasonal, resulting in lower-than-anticipated demand. The correction in international steel prices has been the key reason for poor demand as buyers have deferred purchases. Most of the buyers are waiting sideways and ordering only on an absolute requirement basis; no restocking demand is observed....

SAIL's Q1FY22 result was ahead of our expectations; EBITDA and PAT was 19%/22% higher than our forecast. Its EBITDA/tonne jumped to Rs19,728 as blended realization increased 51% YoY to Rs62,045/tonne. Overall, EBITDA increased to Rs66 bn compared to EBITDA loss of Rs4 bn in Q1FY21. However, the company has cut its FY22 sales volume guidance to 16.5 mn tonnes from 18 mn tonnes guided in Q4FY21....

SAIL reported Q1FY22 EBITDA below our estimates by 7% while above consensus estimates (CE) by 6%. Miss on our estimates was largely due to higher than expected cost. We downgrade our EBITDA estimates for FY22e by 4.8% to factor higher coking coal cost and royalty on iron ore. While, we...

Sales/EBITDA/adjusted PAT came in line with our estimate (-11%/+7%/+8% QoQ) at INR206.4b/INR65.6b/INR38.5b on higher realization, but was offset by lower volumes. Adjusting for the wage revision settlement of INR2.85b for FY21, adjusted EBITDA stood at INR68.5b, up 1% v/s our estimate. Sales volume declined by 24% QoQ to 3.33mt and was 2% below our estimate. The decline was much higher compared to its peers due to the spread of COVID-19 in plants and a maintenance shutdown at one of the plants. Crude steel production was lower by 17% QoQ to 3.77mt....

SAIL has iron ore mines in Chhattisgarh, Jharkhand and Odisha, which aids in meeting 100% of its iron ore requirements captively. Even on the expanded capacity, the company would be self-sufficient in meeting its iron ore requirements. Captive supply of iron ore aids in keeping SAIL's overall raw material costs under check. Also, currently, the relatively firm trend in steel prices augurs well for SAIL. We model EBITDA/tonne of | 12000/tonne...

With steel prices at a record high, SAIL is poised to post its best ever EBITDA/t of ~INR20,000 in 1QFY22. We upgrade our FY22E/FY23E EBITDA estimate by 71%/33% to factor in higher steel prices, and estimate a further INR102b (INR25/share) fall in net debt to INR265b (1x EBITDA) in FY22E. We expect dividend payout to be strong at INR10/share in FY22E (7.5% yield), based on an expected 25% payout ratio. Reiterate Buy....

SAIL's Q4FY21 result was slightly ahead of our expectations; EBITDA was 4% higher than our forecast. Its EBITDA/tonne jumped 2x YoY to Rs13,984 as blended realization increased 22.5% YoY to Rs52,923/tonne. EBITDA increased 144% YoY to Rs61.5 bn led by higher realizations and volumes. Interest cost fell 41% YoY to Rs5.4 bn. Its net debt...

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...