Anand Rathi
SAIL (Buy)
Target: ₹94
CMP: ₹76.50
Steel Authority of India Limited (SAIL) is one of the largest steel-making companies in India.
During the latest quarterly results the company has reported a growth of 19.6 per cent in sales at ₹1,961.40 crore as against ₹1,640.50 crore in Q3-FY20. The company’s operating profit margins stood at 27 per cent at ₹529.40 crore for the quarter against 7.2 per cent at ₹118.60 crore y-o-y, one of the highest operating margins.
The improvement in operating performance was mainly due to higher realisation. In terms of volume, the company’s steel sales rose 1.5 per cent y-o-y to 4.15 mt. For the nine month period the company’s sales stood at 10.6 mt. During the current financial year, domestic demand had been impacted on account of COVID-19 during the initial months. However, the company has seized the opportunity available in the international market by exporting about 1.52 mt during the period as against 0.85 mt . Further, the domestic markets have also started to recover which has reflected in positive current quarter performance. We believe the company to continue to benefit from better realisations in 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.
We initiate our coverage on SAIL with BUY recommendation and a target price of ₹94 per share.