Buy SAIL; target of Rs 139: Angel Broking

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Buy SAIL; target of Rs 139: Angel Broking

Angel Broking is bullish on Steel Authority of India (SAIL) and has recommended buy rating on the stock with a target of Rs 139 in its August 2, 2011 research report.

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Angel Broking is bullish on Steel Authority of India (SAIL) and has recommended buy rating on the stock with a target of Rs 139 in its August 2, 2011 research report.

"SAIL reported net sales of Rs10,811cr, above our estimate of Rs9,405cr for 1QFY2011. However, net profit at Rs839cr was significantly below our estimate of Rs1,029cr. Higher-than-expected coking coal costs led to deviation in profitability."

"During the quarter, SAIL's sales volume increased by 14.6% yoy and decreased by 12.3% qoq to 2.8mn tonnes. However, average realisation for the quarter increased by only 4.5% yoy and 3.2% qoq to Rs39,313/tonne. Consequently, net revenue grew by 19.7% yoy but declined by 9.5% sequentially to Rs10,811cr. Despite increased volumes, EBITDA/tonne declined by 37.0% yoy and 32.0% qoq to US$106 mainly due to higher raw-material costs and staff costs. Raw-material cost grew by 44.3% yoy and 2.4% qoq to Rs17,038/tonne. Consequently, EBITDA margin contracted by massive 827bp yoy and 398bp qoq to 12.1%, well below our estimate of 17.1%. As a result, EBITDA declined by 28.8% yoy and 40.6% qoq to Rs1,312cr. Net profit fell by 28.7% yoy and 44.3% qoq to Rs839cr, in-line with the decline in EBITDA."

"SAIL is expected to increase its saleable steel production capacity from 12.5mn tonnes to 23.1mn tonnes by FY2015. With captive iron ore backing the upcoming steel expansion, we expect robust profitability from these plants. Although there could be unexpected delays in the company's capacity expansion plans, we believe these projects have a greater possibility of sailing through compared to greenfield projects, which have multiple bottlenecks. We maintain our Buy rating on the stock with a revised target price of Rs139," says Angel Broking research report. 

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To read the full report click on the attachment