ICICI Securities says Steel Authority of India (SAIL) management announced a higher capex run rate with the onset of a new volume expansion program. Disparity in long product prices and government contracts vis-à-vis flat product prices is starting to show in muted quarterly realisation performance for SAIL and will only accentuate going forward. 

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ICICI Securities said that SAIL's employee costs are expected to be maintaind YoY for FY21E. Capex has been guided up to Rs 80 bn provided execution happens. Significant deleveraging can happen if the steel prices sustain, yet headwinds seem to be building up on portfolio, costs, expansion capex. ICICI Securities Maintains SELL Rating on SAIL.

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SAIL has targeted capex of Rs 80 bn, but management is not sure whether the same can be executed in FY22E. Nevertheless, the capex plan will pick up pace in the coming years and FY22E capex will definitely be more than Rs 40 bn. SAIL’s Management expects Net Debt to be Rs 250 bn by end FY22E.

SAIL has an ambitious target of selling 13-14 mnte of iron ore in FY22E. The same can be easily achieved if the company is able to sell iron ore inventory in Jharkhand. The company has been able to sell 3.2mnte in FY21 and realized revenue of Rs 12 bn. April and May, ’21 sales have been 0.43mnte. Royalty on iron ore has increased by 150% (mirroring increase for NMDC) for ore mined in Jharkhand