“With the metal spreads bottoming out, we foresee the risk-reward turning profitable for SAIL. SAIL is presently 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 Could’24. We improve SAIL from HOLD to BUY with a revised goal value of Rs 130/share from Rs 115/share,” Axis Securities mentioned in its report.
The goal value on the inventory implies a 19% upside potential from its closing value on Tuesday.
The brokerage agency believes that SAIL has increased sensitivity to metal and coking coal costs. Each Rs 1,000/t improve 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 scale back our FY27 coking coal costs assumption by 4% ($9/t). We marginally improve our HRC costs for FY26/27 by 0.4%/0.2%, leading to a 4% and 13% improve in EBITDA for FY26/27E,” Axis Securities mentioned.
Commenting on SAIL’s growth and profitability, the report famous that SAIL is planning a significant growth, 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 section, it goals so as to add 7.5 MT by FY31, with approvals in place for tasks at IISCO, Bokaro, and Durgapur. The second section, 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, issues stay about excessive debt ranges and previous delays, as SAIL beforehand confronted vital delays and value overruns when increasing its scorching metallic capability from 14.6 MT to 25 MT.
Moreover, the subsequent spherical of capex, anticipated to start out from H2FY26/FY27 and peak in FY28/29, is retaining traders cautious. Within the close to time period, metal value spreads will play an important function in figuring out SAIL’s inventory motion.
Regardless of these issues, Axis Securities believes that the current dip in valuation multiples makes the inventory’s risk-reward steadiness extra favorable.
Lastly, SAIL’s complete 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 scale 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 section of growth from FY27 onwards. SAIL has set a debt-to-equity goal of 1:1 throughout this growth, however there are issues about execution dangers, together with potential delays or price overruns, which might influence its monetary stability.
(Disclaimer: Suggestions, options, views and opinions given by the consultants are their very own. These don’t signify the views of The Financial Instances)
