Motilal Oswal has given Buy recommendation for SAIL recommended buy rating on the stock with a target price of Rs 104 in its research with a target price of Rs. 104 in its research report issued on Mar 23, 2021

Motilal Oswal’s research report on SAIL

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 stock trades at 4.2x FY22E EV/EBITDA, a 25-30% discount to peers TATA and JSTL.

Outlook

At the CMP, the stock is trading at 4.2x FY22E EV/EBITDA, which is at a 25-30% discount to peers TATA and JSTL. Even on FY22E P/BV, it is trading at an attractive 0.6x, despite an expected strong RoE of 16%. – We value the stock at 5x FY22E EV/EBITDA at INR104/share, implying a target P/B of 0.8x (historical average of 0.7x).

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