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Buy SAIL; target of Rs 104: Motilal Oswal

Motilal Oswal is bullish on SAIL recommended buy rating on the stock with a target price of Rs 104 in its research report dated March 23, 2021.

March 24, 2021 / 03:12 PM IST
 
 
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Motilal Oswal's research report on SAIL

We see Steel Authority of India (SAIL) as the best play on higher steel prices as it: 1) is backward integrated with captive iron ore, 2) has a higher operating leverage due to high conversion cost, and 3) has a higher financial leverage. With limited capex, higher pricing should drive significant deleveraging and boost equity value. We estimate net debt to decline by INR232b (INR56/sh, 76% of CMP) over FY20-23E to INR305b. We also expect higher dividend payouts going forward (implying ~5% yield), supported by strong FCF of INR19/sh (25% yield). We are raising our FY22E/FY23E EBITDA estimate by 34%/37% and TP by 28% on expectation of higher realization and volumes. The stock trades at 4.2x FY22E EV/EBITDA, a 25-30% discount to peers TATA and JSTL.



Outlook


At the CMP, the stock is trading at 4.2x FY22E EV/EBITDA, which is at a 25-30% discount to peers TATA and JSTL. Even on FY22E P/BV, it is trading at an attractive 0.6x, despite an expected strong RoE of 16%. - We value the stock at 5x FY22E EV/EBITDA at INR104/share, implying a target P/B of 0.8x (historical average of 0.7x).


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first published: Mar 24, 2021 03:12 pm

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