Rakesh Jhunjhunwala Stocks: Higher coking coal price & rise in steel import may impact SAIL shares, says brokerage – maintains Reduce stance

Billionaire investor Rakesh Jhunjhunwala-backed metal company – SAIL’s (Steel Authority of India) share price likely to go down, as brokerage Edelweiss Research maintained a Reduce stance with a target price of Rs 57 per share. The stock on Friday closed flat with a positive bias at Rs 74 apiece.

The brokerage expects coking coal costs to increase further while realisation is expected to decline following the recent imposition of export duties on steel going ahead. As a result, spreads are expected to squeeze significantly to sub-Rs 5,000/t, it added.

The state-owned metal company reported Q4FY22 EBITDA (adj.) of Rs 39.3bn, which was ahead of brokerage’s estimates and consensus mainly due to lower cost. Besides, the company’s sales volume rose 8 per cent Year-on-Year to a record 4.71mt and net debt was at Rs 163 billion as of FY22-end.

Despite SAIL’s impressive debt reduction in FY22, Edelweiss sees a possibility of it escalating now as cash accretion is likely to reduce due to spread compression and there’s a limited chance of further unlocking working capital.

The company has guided for capex at Rs 80 bn and the debt might hence go up even further, the brokerage said. During the Q4FY22 conference call, management indicated medium-term capex to raise capacity to 50mtpa might stay.

Owing to the weak market, the shares of SAIL have slumped almost 24 per cent in the last one month and over 41 per cent in the last one year, as compared to nearly a 4 per cent fall and around 6 per cent rise in BSE Sensex during the last one month and a year respectively.

Rakesh Jhunjhunwala, who is also called as the Big Bull of the Indian stock market, has trimmed his stakes below 1 per cent during the March quarter, as per the shareholding pattern of the company.