SAIL posts net profit of Rs 3,897.36 crore; should you buy?

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Shares of government-owned steel major SAIL (Steel Authority Of India) were trading lower by 2% at Rs 138.20 per share despite the company posted a consolidated net profit of Rs 3,897.36 crore for June 2021 quarter versus a net loss of Rs 1,226.47-crore net loss in the year-ago quarter. While its net income during April-June 2021 more than doubled to Rs 20,754.75 crore, compared with Rs 9,346.21 crore in the year-ago period.

Crude steel production during the quarter stood at 3.77 million tonnes and sales 3.32 million tonnes, the company said in a statement.

On the operational front, the company recorded EBITDA (earnings before interest, taxes, depreciation and amortization) of Rs 6,741 crore, as against an EBITDA loss of Rs 70 crore in the previous year. The company’s EBITDA was at Rs 6,526 crore in the previous quarter.

That apart the company has been able to bring down its gross debt by Rs 5,063 crore during the quarter. The company’s total debt was at Rs 35,330 crore as of March 31.

As the steel major continues to deleverage its balance sheet and with the next phase of expansion already announced, analysts on the street are bullish on the stock here is what they have to say.

Centrum Institutional Research | Rating: Buy | Target price: Rs 218

SAIL’s deleveraging is expected to continue till FY23 as major capex on the next phase of expansion will start occurring from FY24 onwards, the majority of which can be met by internal cashflows. In the near term, though SAIL’s EBITDA/t is expected to fall marginally from Q1FY22 owing to higher coking coal and employee cost but due to firm steel prices (flat QoQ in Q2FY22E) and increase in volume, EBITDA can inch up higher QoQ. It can provide FY22 DPS (dividend per share) of Rs10.2, a dividend yield of ~7%.

With increase in earnings Centrum has increased the target price to Rs 218 based on 5.5x FY23E EV/EBITDA

Antique Stock Broking | Rating: Buy | Target price: Rs 197

Steel realizations are expected to consolidate in the seasonally weaker 2QFY22 and demand is expected to recover post-monsoon. Higher coking coal costs would impact the record steel spreads, however, the potential imposition of an export tax on steel products in China and Russian export tax would support sentiment towards international prices. Leverage levels continue to improve and proposed capacity expansion is unlikely to stretch the balance sheet.

SAIL is targeting a capacity expansion of 10-15MTPA (million tonnes per annum) in the first phase of expansion over a time frame of three to five years and the long term target is to reach 50MTPA capacity from the current level of ~21.5MTPA.

Citing this Antique Stock Broking maintains its target price of Rs 197 per share at a target multiple of 5.0x FY23E EV/EBITDA (Enterprise value to earnings before interest tax depreciation and amortization).

Phillip Capital | Rating: Buy | Target price: Rs 167

Increasing volumes would continue to drive operational efficiency. Though 2Q looks weak at this point on increasing coking coal prices and seasonal weakness, Phillip Capital expects price softness have already been played out and overall spread would remain at Q4FY21 levels. Strong cash flows will continue to drive aggressive debt reduction in near to medium term. Approval from Jharkhand to sell iron ore will be an added bonus.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)