Sunday, November 02, 2014

Buy SAIL; target of Rs.103: BP Equities BP 
Equities is bullish on Steel Authority of India (SAIL) and has recommended buy rating on the stock with a target of Rs.103 in its October 28, 2014 research report.
“Steel Authority of India Limited (SAIL) is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence. SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants, namely Bhillai (3.15 MTPA), Bokaro (3.9 MTPA), Durgapur (1.6 MTPA), Rourkela (1.7 MTPA) and IISCO steel plant (2.5 MTPA) with a total capacity of 12.4 MT in FY14 (2nd highest in India).” 

“SAIL’s on-going Modernization & Expansion Plan (MEP) will increase it’s saleable steel capacity from 12.4 MT to 20.2 MT and improve efficiency as well. The MEP will also serve to improve SAIL’s product mix to match the forthcoming rise in demand by increasing share of Structural's (4% to 14%), Bars and Rods (13% to 19%) and Railway products (13% to 19%) while rationalizing other product categories. 

We believe that SAIL’s product and cost rationalizations is planned and placed well to exploit the forthcoming lucrative domestic demand scenario and wave of infrastructure wave. The Government’s intention towards reviving the economy was evident in the Union Budget’s inclination towards infrastructure investment, manufacturing and formation of a dynamic investment climate. 

The budget’s emphasis on investments in infrastructure - namely Railways (Golden Quadrilateral, Connectivity in North Eastern India, etc.), Ports, Airports (development of airports in Tier I and Tier II cities), Roads, Construction (100 smart cities) and improved urban infrastructure (waste management plants, revamped public transport, etc) - through PPP route indicate higher demand for long products in forthcoming quarters as sanctioned and initiated projects are increasingly implemented.” 

“We believe that the Modernization and Expansion Program should result in improvements in efficiency and productivity, apart from an increase in saleable steel output. Additionally, demand revival on account investment push in infrastructure, manufacturing and equipment and impetus given to domestic steel industry is expected to drive volume growth going ahead. 

We initiate with a BUY rating on the stock to arrive at a DCF based target price of Rs. 103* (~27% upside from CMP). The stock currently trades at a EV/EBITDA of 9.7x and 7.3x FY15E and FY16E earnings respectively,” says BP Equities research report.


Post a Comment