INSUBCONTINENT EXCLUSIVE:
ET Intelligence Group: Shares of state-owned steel producer SAIL surged 15 per cent in the past three trading sessions, given its 15-year
low valuations and captive iron ore mines, with investors becoming bullish about the prospects of the primary infrastructure
alloy.
International steel prices have risen 15 per cent since January on the back of a surge in global iron ore prices
collapse, causing supply disruption
Analysts are assuming a near 45 MT net production loss in 2019, which could keep iron prices rather high.
SAIL, which owns 100 per cent
captive iron ore, is not affected by the rise in raw material prices
While the situation is turning favourable, the stock is near 15-year low on valuations despite improving operational performance
EBITDA per tonne for SAIL in December was Rs 7,965, the highest in last eight years
At the current price of Rs 54, the stock is trading at 0.5 times price to book
This has put the stock on the radar of many traders.
The reason for higher per tonne EBITDA is control on high wage costs
Employee cost to sales in FY18 was down to 15.5 per cent from 25 per cent in FY16
In the first nine months of FY19, it was 13.5 per cent
up blast furnaces and rolling mills
However, the company addressed this issue with the completion of a Rs 70,000-crore capex and is producing 16 MT annually.
Still, several
industry experts believe that products of its peers could be superior, constraining potential realisations at SAIL
Its first nine month sales fell by 14 per cent as compared to other companies such as JSW Steel, which saw only a 7 per cent drop in volumes
Analysts expect a 10 per cent jump in volumes for SAIL in FY20, and that could be at risk
Also, in that case, debt to EBIDTA could touch as high as 4
The company has net debt of about Rs 44,000 crore.
The rise in sales in the December quarter was due to higher average realisations (steel
prices started falling only after October)
For the December quarter, its sales increased by 3.3 per cent to Rs 15,836 crore
EBIDTA grew by 79 per cent to Rs 2,526 crore.
Macros turning in favour of the company could take the stock price higher, something traders
But long-term investors should do a detailed analysis before buying at the current market price.
