Buy SAIL; target of Rs 142: Motilal Oswal

Motilal Oswal's research report on SAIL

This quarter was impacted by several factors, seasonal and non-seasonal, resulting in lower-than-anticipated demand. The correction in international steel prices has been the key reason for poor demand as buyers have deferred purchases. Most of the buyers are waiting sideways and ordering only on an absolute requirement basis; no restocking demand is observed. Dealers have sufficient inventory and appear to be de-stocking in the event of a price correction. There is strong competition from secondary steel players in the Pipes and Tubes segment. They have started rolling narrow sheets from bigger billets and have been supplying sheets to the P&T segment – this is in direct competition with the Hot Rolled Coil market, especially in the Narrow-width segment An extended monsoon in the southern region and non-seasonal rains in the northern region have contributed to the market disruption. NCR, a major construction market, is facing a ban due to pollution, which has now become an annual feature around this time of the year. The resurgence of COVID in the form of the Omicron variant is bringing back memories of the disruption witnessed during the Delta variant.

Outlook

We maintain a BUY rating, with Target Price of INR142 at 5x FY23E EV/EBITDA. A key risk to our call is the prolonged downturn in China steel prices.

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