Sharekhan has given Hold recommendation for Steel Authority of India with a target price of Rs. 80 in its research report issued on May 24, 2022
Sharekhan’s research report on Steel Authority of India
SAIL’s Q4FY2022 consolidated operating profit of Rs. 4,338 crore slightly missed our estimate on lower-than-expected EBITDA margin. PAT of Rs. 2,471 crore beat estimates on higher other income. Miss in EBITDA margin at Rs. 9,217/tonne was on account of lower-than-expected blended realisation at Rs. 65,361/tonne. The company reported in-line saleable steel sales volumes of 4.7 mt. Recent imposition of 15% export duty on steel would result in a sharp decline in domestic steel price, while benefit of cut in coking coal import duty to nil (from 2.5% earlier) would be small at Rs. 750/tonne. Thus, we expect severe impact on margin and earnings of the steel sector and cut our FY2023E/FY2024E EBITDA by 47%/39% for SAIL.
Weak earnings to impact growth capex, likely increase in debt and could lower sector valuation. Thus, we downgrade SAIL to Hold (from Buy earlier) with a lower PT of Rs. 80. The stock trades at 5.4x its FY2024E EV/EBITDA.