PINC Research has recommended hold rating on Steel Authority of India (SAIL) with a target of Rs 101, in its November 4, 2011 research report.
"SAIL's EBITDA/t at Rs4,690 (22-qtr low) declined 8% YoY and 2% QoQ as cost pressure continued. Operating cost at Rs34,632/t increased 12%YoY on higher coking coal, power and royalty cost. Energy cost has escalated 28% YoY due to increased dependence on Grid (37% in H1FY12 vs. 26% in H1FY11) ref pg.3. Despite reduction in manpower, employee cost surged 19% YoY to Rs6,482/t from Rs5,450/t in Q2FY11. However, it declined 12% QoQ as employee cost in Q1FY12 was high due to one-off leave encashment of Rs2.4bn."
"SAIL's Q2 EBITDA at Rs4,690 (22-qtr low) and OPM at 11.9%, in spite of captive iron ore is substandard due to higher cost and operational inefficiencies. High capital cost, worsened by cost and time-overrun further falter our confidence on the stock. Moreover, uncertainty on FPO remains additional overhang on the stock. We have reduced our FY12 and FY13 estimates to factor in higher cost (ref pg.4). We estimate EBITDA/t of USD112 for FY12E and USD146 for FY13E. We maintain 'HOLD' rating on the stock with a revised TP of Rs101 (5.5x FY13E EV/EBITDA + CWIP at 40% disc to BV)," says PINC Research report.
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