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Share India
SAIL (by)
CMP: ₹97.45
Target: ₹210
SAIL over FY14-17 has been a laggard and faced execution delays with low capacity expansion in comparison to domestic peers share. However, with demand pick up in steel industry and benefit of captive iron ore mines EBITDA/t is expected to touch previous highs and lead to higher margins. SAIL has historically disappointed on operational side especially, however, with substantial capital (about $10 billion) already spent over the past decade towards modernisation and expansion, SAIL should see improvement with cyclical uptick in domestic steel industry. SAIL has majority of its sales in domestic market and given infrastructure push by GOI it will perform better in its area of operation.
Outlook & valuation: We believe FY18 would mark turnaround for company has earning are expected to bottom out and come in black FY19 onwards. SAIL has highest operating leverage among its business peers and would be a big beneficiary of industry uptick, infrastructure push by GOI, rural housing growth and industrial production growth. We expect SAIL to report higher cash turnaround and increase its EBITDA over FY20E to higher than 15 per cent over sales of about ₹70,000 crore.
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