Shares of Steel Authority of India Ltd, abbreviated as SAIL by Dalal Street participants, inched higher on Monday even as the company reported a dismal set for numbers in the June 2024 quarter. Brokerage firms tracking the stock are mostly negative or neutral at best, anticipating the stock prices to crash about 50 per cent.
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Analysts said that the company has been hit hard on the back of low volumes, subdued steel prices and prolonged capital expenditure period. Even the mounting debts, management’s commentary, and operations inefficiency continue to weigh on the prospects of the company, with no respite in the near term.
“We cut Ebitda estimates on account of weak steel pricing in the near term and high-cost coking coal inventory. SAIL reported weak operating performance in Q1FY25 on account of muted 3 per cent volume growth; costs were largely in-line. Average NSR improved 3 per cent QoQ to Rs 59,845 per ton due to higher long product prices in domestic markets,” said Prabhudas Lilladher.
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As steel prices are on a declining trend, we expect SAIL’s Q2FY25 performance to be impacted. SAIL targets to reach 35mtpa by FY32 in phases. In the first phase of this capex, Rs370bn is planned to be spent at IISCO for 4mtpa capacity addition, much higher than industry benchmark. At CMP, stock is trading at an EV of 7 times FY25 Ebitda, with a ‘sell’ tag and a target price of Rs 112.
SAIL reported Q1FY25 adjusted Ebitda, rising 12 per cent QoQ, owing to lower input cost and higher non-steel sales partially offset by lower volumes and prices. This resulted in an Ebitda per ton t of Rs 5,532, up by Rs 1,300 per ton QoQ. Gross debt increased by Rs 56,800 crore QoQ to Rs 41,380 crore due to a rise in working capital, said Nuvama Institutional Equities.
“We are cutting FY25E/26E Ebitda by 8 per cent/6 per cent factoring in lower gross margin. Furthermore, SAIL is undertaking heavy capex to expand capacity by 15mtpa. This would keep its net debt high. We reckon minimal volume growth and no deleveraging over the next three–four years,” Nuvama said with a ‘reduce’ rating and revised target price of Rs 98.
Steel Authority of India reported an over 60 per cent YoY decline in consolidated net profit for the first quarter of financial year 2024-25 to Rs 81.78 crore on the back of a drop in the domestic sale price of steel due to pressure from imports. The fall in the bottomline was significant despite an exceptional gain of Rs 311.76 crore booked by the company in the given quarter.
Public sector undertaking’s consolidated total income slipped by 2.61 per cent YoY to Rs 24,174.8 crore compared with the same quarter of the previous financial year. However, SAIL’s Ebitda surged 34.6 per cent YoY to Rs 2,200 crore in the first quarter of this fiscal.
SAIL is planning to undertake multiple expansions to reach the installed capacity of 35mt by FY30-31. As the capex intensity is likely to pick up after FY25/FY26, it would limit the deleveraging efforts going forward. We cut our Ebitda and PAT estimates for FY25, envisaging pricing pressure due to cheap imports and largely flat coal costs in the near term, said Motilal Oswal.
“SAIL trades at 6 times EV/Ebitda on FY26E. We believe the stock is fully priced at current levels. We reiterate our Neutral rating on the stock with a revised target of Rs 140,” it added.
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SAIL’s Capex execution will be a key monitorable and also a key risk once its expansion Capex starts from FY27 and peaks in FY28/29. Annual capex spend will be at Rs 6,300 crore and Rs 7,000 crore for FY25 and 26, respectively. For FY25, crude steel production will be at 20.87 MT and sales volume will be at 19.26 MT, said Axis Securities, downgrading the stock to ‘hold’ with a target price of Rs 130.
Shares of SAIL rose nearly 2 per cent to Rs 131.95 on Monday, with a total market capitalization slightly below Rs 55,000 crore. The stock had settled at Rs 129.40 on Friday. The stock is down as much as 25 per cent from its 52-week high at Rs 176.55 hit in May 2024.
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SAIL’s Q1FY25 Ebitda was below estimate on higher costs. Management commentary on spreads was disappointing, with lower prices and flat costs in the near term. Total borrowings increased sequentially in Q1FY25 by Rs 5,000 crore, without any growth capex, said Kotak Institutional Equities.
“SAIL is embarking on expansion projects at a high capital cost (2 times peers), which would further weaken the balance sheet over the next five years, similar to the last decade. We cut earnings and expect significant downgrades by the consensus,” it added with a ‘sell’ rating and a reduced target price of Rs 65, suggesting a 50 per cent fall in the stock.
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