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Sell SAIL; target of Rs 50: ICICIdirect

ICICIdirect.com is bearish on Steel Authority of India and has recommended sell rating on the stock with a target price of Rs 50, in its research report dated August 17, 2015

August 17, 2015 / 07:08 PM IST
 
 
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ICICIdirect.com's report on Steel Authority of India

SAIL reported a dismal set of Q1FY16 numbers wherein the topline, EBITDA and PAT came in notably lower than our estimate. The performance during the quarter was impacted by a steep fall in realisations (14% YoY) and relatively elevated costs levels. Going forward, we expect domestic steel prices to remain muted due to constant threat of imports, especi ally after recent rounds of Yuan devaluation. Subsequently, we have revised downward our FY16E and FY17E estimates

The company reported in come from operations of | 9502.8 crore for the quarter, down 16.2% YoY (our estimate: | 9974.7 crore). Blended realisations for the quarter came in at | 34870/tonne (down 14% YoY). Sales volume also came in lower than our expectation at 2.69 MT (our estimate 2.8 MT)

On the back of higher-than-expe cted operating costs and muted realisations, SAIL reported a loss at the EBITDA level of | 81.7 crore vs. our estimate of positive EBITDA of | 772.5 crore. EBITDA in the quarter was also impacted by inve ntory write down of ~| 300 crore

During the quarter, the company did not incur any tax expense due to loss at the PBT level. However, it did receive tax credit (negative tax provision) to the tune of | 454. 9 crore on account of investment allowance. The company reported a loss at the PAT level of | 321.6 crore vs. our estimate of PAT of | 20.0 crore

The company reported a muted performance on account of a drop in realisations due to subdued demand. On account of the challenging   operational environment we have downward revised FY16E and FY17E EBITDA estimates by 25% and 5.3%, respectively. We have valued the stock at 6x FY17E EV/EBITDA and the company’s CWIP at book value to arrive at a target price of | 50. We have a SELL rating on the stock. Potential safeguard duty on steel imports and a pick-up in domestic steel demand remain key risks to our negative stance on the stock.

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first published: Aug 17, 2015 07:08 pm

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