Sell SAIL; target of Rs 82: Emkay

Emkay Global Financial Services is bearish on Steel Authority of India (SAIL) and has recommended sell rating on the stock with a target of Rs 82 in its January 7, 2013 research report.

January 07, 2013 / 01:01 PM IST

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Emkay Global Financial Services is bearish on Steel Authority of India (SAIL) and has recommended sell rating on the stock with a target of Rs 82 in its January 7, 2013 research report.

We see risk to FY14 volume estimates: Based on the interaction we cut our Q3FY14 volume estimate from 3 mt to 2.85 mt. This brings down our FY13 volume estimate to 11.3 mt. Though, we keep our FY14 volume unchanged at 13.2 mt, we see risk of a downgrade in that, as the project commissioning seems getting delayed further. Also, due as one of the blast furnaces in Rourkela would go for relining, incremental volume growth would remain under question.”

Valuation looks expensive after run- up in stock price; Downgrade to sell: Recently the stock price of SAIL has run- up sharply broadly on market optimism and despite no significant change in weak fundamentals of the sector. At Rs 95, the stock trades at 10.6xFY14 EPS and 8.5xFY14 EV/ EBITDA. This looks expensive. While keeping our estimates broadly unchanged for FY14 as of now and maintaining our valuation criteria (5xFY14 EV/ EBITDA with 50% value of the FY14 CWIP) we downgrade the stock to Sell due to recent rally and uncertainty in the volume growth.

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