Buy This Maharatna Stock For A Target Price of Rs 130 Says Motilal Oswal

Steel Authority of India (SAIL) Ltd is a large-cap metal company having a market cap of Rs 41,904.18 Cr. SAIL is one of India's leading steel-making corporations and one of the country's Central Public Sector Enterprises' Maharatnas and deals with a range of steep products. Post the company's 3QFY22 results, the brokerage firm Motilal Oswal has set a buy rating for the stock with a target price of INR 130. Currently, the stock is trading at a market price of Rs 101.95 per share as of 11 Feb, 3:13 pm IST.

3QFY22 results of SAIL

Motilal Oswal has highlighted that "SAIL reported reduction of INR34b in current quarter on top of INR50b achieved in 1Q and INR78b in 2Q, taking cumulative debt reduction in 9MFY22 to INR162b, reflecting the most judicious use of the up-cycle to repair the balance sheet while the going is strong. Sales volume at 3.83 mt (YoY/QoQ: -7%/-10%), was in line with our estimates. ASP for 3QFY22 was INR65,745/t (YoY/QoQ: +38%/+5%), 6% ahead of our estimate of INR62,254/t".

According to the brokerage "Revenue at INR252b (YoY/QoQ: +27%/-6%) was 7% higher than our estimate of INR237b driven by 6% beat on ASP and 1% beat on sales volume. Reported EBITDA for the quarter was at INR34.1b translating into an EBITDA/t of INR8,881 (down 27% YoY, down 46% QoQ). However, there are a few adjustments to be made to arrive at the actual business EBITDA for the period".

The brokerage’s take on SAIL

As per Motilal Oswal "SAIL has, since the beginning of FY22, reduced its debt by INR162b. However, its market cap has increased by only INR102b. Thus, the market has not rewarded the company even to the extent of debt reduction. We are positive on the steel cycle. We expect China to start stimulating the economy post Olympics. In addition, extending the peak carbon deadline from 2025 to 2030 implies steel production should pick up in China. However, if China refrains from flooding the world with its steel supply, we believe the steel industry is here for another round of price hikes/EBITDA growth".

According to Motilal Oswal "However, coking coal prices have impacted steel margins with all time high coal prices continuing despite softening in steel prices and demand. We note that the coking coal price hike is driven by (a) Covid related issues in Australia and (b) prevalence of La Nina for the second consecutive year in Australia which will likely extend till Mar-22 this time (a month more than usual) and can impact coal supplies further, but should ease post-Mar-22".

The brokerage has further claimed that "We reduce our FY23 EBITDA by 8.3% to factor in the delayed reduction in coal prices which translates into 13% reduction in PAT for FY23. However, we note that the debt reduction achieved by SAIL is higher than our estimates. Maintain BUY with a TP of INR130 (vs 142 previously) premised on 5x FY23 EV/EBITDA".

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.