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Last Updated : Feb 18, 2013 04:05 PM IST | Source: Moneycontrol.com

Sell SAIL; target of Rs 39: Motilal Oswal

Motilal Oswal is bearish on Steel Authority of India (SAIL) and has recommended sell rating on the stock with a target of Rs 39 in its February 13, 2013 research report.

 
 
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Motilal Oswal is bearish on Steel Authority of India (SAIL) and has recommended sell rating on the stock with a target of Rs 39 in its February 13, 2013 research report.


“SAIL, adjusted PAT declined 2percent QoQ to INR4.8b, in line with estimates. EBITDA increased 3percent QoQ to INR11.4b, in line with estimates. EBITDA per ton declined 1percent QoQ to USD76/ton v/s est of USD75/t. Sales volume increased 6percent QoQ to 2.75m tons, while production decreased 4percent QoQ to 3.06mt. There has been an increase in inventories by INR7.1b during the quarter. This is the third subsequent quarter when SAIL witnessed an increase in inventories, implying poor demand. Average realization declined 7percent QoQ to INR38,800/t, which was 2percent higher than our est of INR37,905/t.”


Raw material cost per ton declined 4percent QoQ, while power and fuel cost declined 16percent QoQ. Forex loss on INR depreciation against USD was INR307m. Interest cost increased 19percent QoQ to INR2.2b, while net debt rose by INR27b QoQ to INR174.3b. Board has declared an interim dividend of INR1.6/share v/s INR1.2/share interim dividend in FY12.SAIL spent INR18.6b in 3QFY13 and INR65.5b in 9MFY13 towards various projects. It plans to spend INR105-110b in FY13. Major facilities at ISP and RSP are at advanced stages of completion and are expected to begin operation in 4QFY13. However, we remain concerned on volume ramp-up due to poor demand and intense competition from private players who recently added capacity.” 


“We have cut volume estimates by 1.2mt each in FY14E and FY15E to 12.3mt and 13.6mt due to lower guidance by the management. Thus, our FY14E and FY15E EPS have been cut by 28percent and 36percent respectively. Stock is trading at rich FY15E EV/EBITDA of 9x and PE of 18.5x. We value SAIL at INR39 (5x FY15E EV/EBITDA, 58percent discount to CWIP). Maintain sell,” says Motilal Oswal Research report.


FIIs holding more than 30% in Indian cos


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To read the full report click on the attachment



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First Published on Feb 18, 2013 04:05 pm
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