Sharekhan's research report on Steel Authority of India
Q4FY23 results were subdued as higher costs led to a miss of 19% in EBITDA margin at Rs. 6,248/tonne (up 25% q-o-q). Consequently, operating profit/PAT of Rs. 2924 crore/Rs. 1189 crore, up 47%/4.7x q-o-q were 17%/15% below our estimate. Overall operating cost rose 13% q-o-q primarily due to higher employee cost given rise in actuarial valuation (Rs. 400 crore impact) and higher pension provision. Improvement of 3% q-o-q in blended steel realisation at Rs. 62,052/tonne was lower than expectation; steel sales volume of 4.7 mt (up 13% q-o-q) was 3% above our estimate. The management guided for a strong 15% y-o-y growth in steel sales volume to 18.7 mt for FY24 and aims to reduce debt in FY24. SAIL has envisaged as massive capex plan of Rs. 1 lakh crore (with peak capex over FY28-29) over next 9-10 years to expand steel production capacity to 35mtpa (versus 20mtpa currently).
Outlook
We maintain a Hold rating on SAIL with a revised PT of Rs. 90 noting inexpensive valuation of 3.8x FY25E EV/EBITDA and 0.5x FY25E P/BV. We believe that a major balance sheet deleveraging cycle is largely over as the company’s plan to expand capacities would require sizable capex.
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