“With the metal spreads bottoming out, we foresee the risk-reward turning profitable for SAIL. SAIL is at the moment buying and selling at 0.72x 12MF P/B, increased than its LT common of 0.6x however nonetheless a lot decrease than the current peak of 1.24x in Might’24. We improve SAIL from HOLD to BUY with a revised goal worth of Rs 130/share from Rs 115/share,” Axis Securities stated in its report.
The goal worth on the inventory implies a 19% upside potential from its closing worth on Tuesday.
The brokerage agency believes that SAIL has increased sensitivity to metal and coking coal costs. Each Rs 1,000/t enhance in Scorching Rolled Coils (HRC) costs will increase SAIL’s EBITDA by 15% (4% for Tata Metal) and each $10/t decline in coking coal costs will increase EBITDA by 10%.
“With the softness within the coking coal costs, we cut back our FY27 coking coal costs assumption by 4% ($9/t). We marginally enhance our HRC costs for FY26/27 by 0.4%/0.2%, leading to a 4% and 13% enhance in EBITDA for FY26/27E,” Axis Securities stated.
Commenting on SAIL’s enlargement and profitability, the report famous that SAIL is planning a significant enlargement, growing its metal manufacturing capability from 20 million tonnes (MT) to 35 MT in a number of phases, with a complete capital expenditure (capex) of Rs 1.1-1.2 lakh crore.Within the first part, it goals so as to add 7.5 MT by FY31, with approvals in place for initiatives at IISCO, Bokaro, and Durgapur. The second part, which incorporates expansions at Rourkela and Durgapur, remains to be awaiting approval and can add one other 7.5 MT.Additionally learn: What’s behind the fiasco at IndusInd Financial institution?Nonetheless, considerations stay about excessive debt ranges and previous delays, as SAIL beforehand confronted vital delays and value overruns when increasing its sizzling metallic capability from 14.6 MT to 25 MT.
Moreover, the following spherical of capex, anticipated to start out from H2FY26/FY27 and peak in FY28/29, is holding buyers cautious. Within the close to time period, metal worth spreads will play an important function in figuring out SAIL’s inventory motion.
Regardless of these considerations, Axis Securities believes that the current dip in valuation multiples makes the inventory’s risk-reward stability extra favorable.
Lastly, SAIL’s whole borrowings have decreased quarter-on-quarter (QoQ) to Rs 32,600 crore, down from Rs 35,596 crore on the finish of Q2FY25. The corporate goals to additional cut back its debt to Rs 30,500 crore, bringing it in step with ranges seen on the finish of FY24.
Nonetheless, there’s a danger of rising leverage as the corporate enters its subsequent part of enlargement from FY27 onwards. SAIL has set a debt-to-equity goal of 1:1 throughout this enlargement, however there are considerations about execution dangers, together with potential delays or value overruns, which may impression its monetary stability.
(Disclaimer: Suggestions, strategies, views and opinions given by the specialists are their very own. These don’t signify the views of The Financial Occasions)
