Hold Steel Authority of India; target of Rs 95: Sharekhan

Sharekhan's research report on Steel Authority of India

Q3FY23 results were subdued with a sharp miss of 59% in consolidated adjusted PAT at Rs. 252 crore (down 89% y-o-y) due to lower-than-expected margins, sharply lower other income and higher interest costs. Adjusted EBITDA margin of Rs. 4,789 per tonne was 5% below our estimates due to weaker-than-expected blended realisations that fell 3.6% q-o-q. Reported EBITDA margin of Rs. 5,007/tonne had benefit of Rs. 91 crore related to rail price revision for FY20 and FY21. Saleable steel volume of 4.2 mt, down 1.4% q-o-q was 1% below our estimates. Q4FY23 could see improvement in steel spreads as steel price improves but recent surge in coking coal prices to $380/tonne raises concerns on sustained margin improvement for steel companies. We believe that major balance sheet deleveraging cycle for SAIL is largely over as capacity expansions would require capex.

Outlook

We maintain our Hold rating on SAIL with a revised PT of Rs. 95 noting inexpensive valuation of 4.1x FY24E EV/EBITDA and 0.6x FY24E P/BV.