SAIL will outperform, says Sanju Verma

SAIL will outperform in the metal space, says Sanju Verma, MD & CEO, Violet Arch Capital Advisors.

Verma told CNBC-TV18, "Tata Steel at a consolidated level I think the numbers are far from flattering and that is putting it very mildly. They did an EPS of something like Rs 99 in FY11 and FY12 EPS will barely be something like Rs 44-45, though in FY13 that obviously scales up all the way to Rs 55-56. Who knows, optimistically speaking they could even do a Rs 60 EPS in FY13 but between FY11 and FY13 if you noticed the CAGR growth has virtually been zilch. From Rs 100 EPS in FY11 to assuming in an optimistic scenario Rs 60 EPS in FY13 is not saying too much about the company and this when realizations are actually not bad."
She further added, "If you look at a player like SAIL for instance, despite a 20% increase in production year-on-year in the third quarter of FY12 SAIL actually managed to show a realization growth of 18% year-on-year and the EBITDA per tonne went up 28% quarter-on-quarter and 10% year-on-year. Needless to say, the reason I am talking of SAIL is this is one stock that we have got bang on target with respect to coverage. We initiated coverage at about Rs 72. The stock currently is at about Rs 92 or thereabouts. We have a price target of Rs 94 which obviously has been breached at various points in the last two to three months and we continue to believe that this is one stock within the metal space which will outperform and our bull case price target actually is a pretty aggressive Rs 136 which I think will be achieved."
"So my sense is you really need to now focus on the India centric metal companies and SAIL clearly stands to benefit if the recent price hikes of 7-8% in the last three months is anything to go by. They have had three price hikes in the last three to four months and my sense is that you really can’t go wrong with the stock which is trading at 9 times price-to-earnings but net of cash it’s just trading at just about 4-4.5 times, so huge valuation comfort."
"I would stay away from Tata Steel and if I have to really look at another metals name then perhaps I would look at something like India Cement, if you can classify cement in the broader metal space, broader commodities space while it’s true that the best maybe over for some of the cement companies. They have had phenomenal run-up in the last five to six months for no good reason because volume growth was hardly there. They will end FY12 with hardly a 6.5% volume growth."
"In FY13 cement companies will do a volume growth of 9-10% is what the general consensus is and what I believe. But mind you the reason for liking India Cement is that they are likely to do something like a Rs 9-10 EPS this year and about Rs 13 next year. So the earnings comfort is there and this is one stock which is trading at a huge discount. I don’t think you can go wrong buying it at about 9 times one year forward rather than going ahead and buying any ACC or an Ambuja Cement at 19 times or 20 times price-to-earnings where the earnings upside is limited and the valuation comfort is absolutely zero. So from the broader commodity space India Cement, like I said SAIL, in a limited sense Hindalco as well."