Motilal Oswal reveals SAIL price target; know top details here

On an eventful day, SAIL share price closed at Rs 90, down Re 1 or 1%. Today, RBI announced it was retaining the status quo on repo rate. SAIL share price has moved up from Rs 79 to Rs 90 in the last one week. Motilal Oswal, in its report, said that with limited capex and higher pricing, SAIL should drive significant deleveraging and boost equity value. Motilal Oswal estimates net debt to decline by Rs 232 bn (Rs 56/sh, 76% of CMP) over FY20-23E to Rs 305 bn.

Motilal Oswal also expects higher dividend payouts going forward (implying 5% yield), supported by strong Free Cash Flow of Rs 19/sh (25% yield). Motilal Oswal are raising our FY22E/FY23E EBITDA estimate by 34%/37% on expectation of higher realization and volumes. The stock trades at a 25-30% discount to peers Tata Steel and JSW Steel. Motilal Oswal raises target price on SAIL to Rs 104.
 
Motilal Oswal sees Steel Authority of India (SAIL) as the best play on higher steel prices as:

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1)       it is backward integrated with captive iron ore
2)      has a higher operating leverage due to high conversion cost
3)      has a higher financial leverage

Technical Analysis on SAIL

Chandan Taparia, Derivative & Technical Analyst, Motilal Oswal Financial Services says that SAIL should be bought with a stop loss of Rs 86 and target of Rs 94. Stock has crossed its hurdle on a weekly scale and has been forming higher highs - higher lows in the daily frame. 95% rollover was seen from the previous series with call unwinding at all immediate strikes.

Higher realization and volume growth to drive earnings:

Given a strong steel cycle, Motilal Oswal expects realization to remain high in the medium term, which, coupled with an inefficient cost structure (higher conversion cost), should provide disproportionate margin gains to SAIL. Every Rs 1,000/t of higher steel price improves SAIL’s FY22E EBITDA by 11%. Supported by under-utilized capacities, volume growth is expected to be strong at 9% CAGR over FY21-23E. There is also a likelihood of product mix improvement (higher finished steel sales).