SAIL shares flat year-to-date. Here're stock price targets

Shares of Steel Authority of India Ltd (SAIL) are flat year-to-date and if one were to go by analysts, upside is capped on the counter. Anlaysts noted that the steel producer has earmarked Rs 1 lakh crore for expansions across all its facilities over the next decade. As the intensity of capex is expected to pick up post FY25, said Motilal Oswal Securities, it would limit the deleveraging going ahead and thereby put pressure on the balance sheet and cash flow.

On Friday, the stock rose 1.41 per cent to settle at Rs 89.27 on BSE. The scrip has delivered nil return year-to-date but is up 8.56 per cent in the last six months.

"In line with the increase in coal cost and capex guidance, we have reduced our Ebitda estimates for FY24/FY25 by 10 per cent/1 per cent. SAIL trades at FY25 EV/Ebitda of 5.7 times. We reiterate our 'Neutral' rating on the stock with an unchanged target of Rs 85," Motilal Oswal said.

Prabhudas Lilladher said SAIL's operating performance was weak in Q2 despite strong 14 per cent YoY volume growth. It said higher cost of imported coking coal prices would impact in March quarter Ebitda. ICICI Securities said SAIL may deliver the highest volume growth among peers in Q3FY24 and this may result in operating leverage benefits.

"Besides, the coking coal procurement structure of the company is likely to ensure that it is better insulated from the adverse impact of higher international coking coal price in Q3FY24. Taking cognizance of Q2FY24’s performance, we trim our FY24/FY25 Ebitda by 5 per cent each, resulting in a revised target of Rs 95 (earlier Rs 100)," said ICICI Securities.

SAIL has planned to increase its capacity from 20.2mtpa to 35mtpa by FY32 in phases but PL said delays cannot be ruled out with its current pace of execution, debt on balance sheet and overall inefficiencies.

Prabhudas Lilladher has cut its FY24/25 Ebitda estimates by 5 per cent and 2 per cent, respectively, on weaker H1 performance.

"We expect SAIL to remain a play on steel prices in medium term as a) its volume growth would depend upon successful execution of its planned capex in phases and significant capacity addition would only come post FY28E; b) near term volume growth would remain 8-10% but margins can get affected by higher coking coal costs; c) however hardening Iron ore prices will keep SAIL’s strategic advantage intact vis a vis peers," Prabhudas Lilladher said.

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