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Last Updated : Nov 13, 2015 11:47 AM IST | Source:

Sell SAIL; target of Rs 40:ICICI Direct

ICICI Direct is bearish on SAIL and has recommended sell rating on the stock with a target price of Rs 40 in its research report dated November 9 , 2015.

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ICICI Direct's research report on SAIL

ICICI Direct's research report on SAIL SAIL reported a dismal set of Q2FY16 numbers wherein the EBITDA and bottomline came in notably lower than our estimate. The performance during the quarter was impacted by a steep fall in realisations & relatively higher elevated costs levels. While realisations declined 3.2% QoQ, raw material cost per tonne of saleable steel sales increased sequentially by 10.3%. Muted steel realisations coupled with elevated levels of cost of production are expected to adversely impact the financial performance. Subsequently, we revise downward our FY16E and FY17E estimates SAIL reported a net income from operations of | 9256.9 crore for the quarter, down 2.6% QoQ and 20.7% YoY and broadly in line with our estimate of | 9060.7 crore. Sales volume came in at ~2.7 million tonnes (MT), marginally lower than our estimate of 2.8 MT The company reported an EBITDA loss of | 1048 crore, notably higher than our EBITDA loss estimate of | 502 crore. The subsequent net loss came in at | 1056 crore, notably higher than our net loss estimate of | 662 crore

The company reported a muted performance on account of a drop in realisation due to subdued demand. On account of the challenging operational environment, we have downward revised FY16E and FY17E EBITDA estimates by 89.4% and 20.0%, respectively. We have valued the stock at 6x FY17E EV/EBITDA and given a 25% discount to the company’s CWIP and arrived at a target price of | 40. We have a SELL recommendation on the stock. Any notable pick-up in domestic steel demand remains a key risk to our negative stance on the stock.

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First Published on Nov 13, 2015 11:47 am
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