Target: ₹100
CMP: ₹84.91
Steel Authority of India’s (SAIL) Q1-FY24 EBITDA at ₹1,650 crore was 38 per cent ahead of our estimate mainly due to better- than-expected realisation. Key highlights: EBITDA/te at ₹4,250 was ahead of our estimate of ₹3,074; coking coal price was up a mere $10/te QoQ; borrowings increased by ₹3,750 crore mainly due to working capital accretion; and next round of 15 mtpa brownfield capex to gather pace.
Going ahead, management expects lower coking coal prices to aid margins. In our view, while SAIL is the biggest beneficiary of falling coking coal prices, the upcoming capex rollout needs to be watched out. The management has guided FY24 capex at ₹6,800 crore largely for maintenance and replacement of certain equipment reaching the end of life. Q1FY24 capex was ₹920 crore.
Management mentioned that efforts are afoot for brownfield expansion to reach 35mtpa capacity by FY31.
Taking cognisance of better than expected Q1-FY24 performance, we raise our FY24/FY25 EBITDA by 5 per cent/7 per cent. That said, we will keep a tab on capex outflow and timelines as cost overruns and delays can constrain the returns.
We maintain Add rating on the stock. Our revised TP works out to ₹100 (earlier ₹92).