Motilal Oswal's research report on SAIL
SAIL’s result highlights strong gains from higher steel prices in the business model – 3QFY21 EBITDA was up 147% YoY to INR50.8b, the highest ever. Net debt also fell sharply by 12% QoQ to INR443.0b. n Spot steel prices are ~INR7,000/t, above the 3QFY21 average, which should drive 24% QoQ growth in EBITDA in 4QFY21, even after factoring in wage revisions. We raise FY21E EBITDA by 13%, factoring in strong near-term pricing. n Even after factoring in conservative pricing in FY22E (~INR10,000/t decline from spot), we estimate a further INR71b (INR17/sh) fall in net debt to INR372b (3.2x of EBITDA) by Mar’22. Therefore, we upgrade to Buy. The valuation is also attractive at 5.2x FY22e EV/EBITDA and 0.5x P/B.
Outlook
We value the stock at 6.0x FY22E EV/EBITDA at INR81/sh, implying target P/B of 0.7x (in line with the historical average). Upgrade to Buy
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