SAIL share price: Anand Rathi initiates coverage with BUY recommendation and a target price of Rs 94 per share

Steel Authority of India Limited (SAIL) is one of the largest steel-making companies in India and one of the Maharatna’s of the country’s Central Public Sector Enterprises. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials. SAIL manufactures and sells a broad range of steel products including special steel used in defence manufacturing. SAIL share price today is Rs 67, up Rs 2.8 or 3.7%.
 
During the latest quarterly results the company has reported a growth of 19.6% in sales at Rs 19614 mn as against Rs 16405 mn in Q3-FY20. SAIL’s operating profit margins stood at 27% at Rs 5294 mn for the quarter against 7.2% at Rs 1186 mn YoY, one of the highest operating margins. The improvement in operating performance was mainly due to higher realisation.
 

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In terms of volume, SAIL’s steel sales rose 1.5% YoY to 4.15 mn Tons. For the nine month period the company’s sales stood at 10.6 mn Tons. During the current financial year, domestic demand had been impacted on account of COVID-19 during the initial months. However, SAIL has seized the opportunity available in the international market by exporting about 1.52 mn tonnes during the period as against 0.85 mn tonnes during YoY. Further, the domestic markets have also started to recover which has reflected in positive current quarter performance.
 
In terms of balance sheet, SAIL has also continued to reduce debt which stood at Rs 466.1 bn in Q3-FY21 as against Rs 541.3 bn in Q4-FY20, a reduction of 14%. SAIL has guided its net debt to fall below Rs 400 bn by Q4 FY21. SAIL's management is also expected to revise employee costs and has guided it to increase by about 10% in Q4-FY21. In terms of guidance, SAIL expects to maintain its current run rate of sales volume of about 4.2 mnTons and achieve about 17 mn Ton in FY22. On the capex front the company has incurred a capex of about Rs 24.4 bn so far and expects to close the current financial year at about Rs 48 bn.
 
Anand Rathi believes SAIL will continue to benefit from better realisations in the medium term, the expected increase in employee costs should be absorbed by improved realisations and increased share of value added products. Also, the stronger balance sheet due to lower debt augurs well for the company. Anand Rathi initiates coverage on SAIL with BUY recommendation and a target price of Rs 94 per share.