Icicidirect is bearish on SAIL and has recommended sell rating on the stock with a target price of Rs 35 in its research report dated November 10 , 2016.
Icicidirect research call on SAIL
SAIL reported a dismal set of Q3FY16 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 and relatively higher elevated costs levels. While
realisations declined 10.0% QoQ and 20.9% YoY, raw material cost
per tonne of saleable steel sales declined only 5.2% QoQ and also
increased 1.7% YoY. 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.
• The company reported a net income from operations of | 8939.1
crore for the quarter, down 3.4% QoQ and 19.5% YoY and below our
estimate of | 9149.8 crore. Sales volumes came in at ~2.9 million
tonnes (MT), in line with our estimate. EBITDA/tonne came in at
negative | 4764/tonne, higher than our estimate of negative
EBITDA/tonne of | 4500/tonne.
• The company reported an EBITDA loss of | 1381.5 crore, notably
higher than our EBITDA loss estimate of | 1285.8 crore. The
subsequent net loss came in at | 1528.7 crore, notably higher than
our net loss estimate of | 1021.7 crore.
Valuation : 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 expect the company to report EBITDA level loss for FY16E. On account of headwinds, we have also downward revised FY17E EBITDA estimates by 12.2%. We have valued the stock at 6.5x FY17E EV/EBITDA, given a 25% discount to the company’s CWIP and arrived at a target price of | 35. 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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