Geojit Financial Services recommended hold rating on Steel Authority of India with a target price of Rs 65 in its research report dated October 24, 2017.
Geojit Research's report on Steel Authority of India
The company reported 9% QoQ decline in standalone revenue in Q1FY18 mainly due to 11% fall in sales volume offsetting the 3.8% increase in realisation. However, adjusting for prior period sales of Rs. 248 cr received on account of finalisation of prices of rails supplied to the Railways by the Bhilai Steel plant for the period FY13 to FY15, standalone revenue fell by 11% QoQ while growth in realisation was restricted to 2%. Besides, the management has guided for saleable steel production volume of 16-16.5MT for FY18 and 18MT for FY19.
The company is ailing with structural issues given its high cost structure and weak product mix. Further, we expect the company to continue to report losses at net level in FY18E and to be only marginally profitable in FY19E owing to higher depreciation and interest costs led by huge capacity expansion. We believe steel prices to remain firm in the near term. Hence, we recommend “HOLD” rating on the stock with a revised TP of Rs. 65 based on 0.75x FY19E P/BV.
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