Buy Steel Authority of India Ltd : Deleveraging continues; sales volumes achieve new highs - Motilal Oswal
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Buy Steel Authority of India Ltd For Target Rs.104
Deleveraging continues; sales volumes achieve new highs
Gross debt down 30% YoY in FY21
* SAIL, in a press release, informed that it has reduced its gross debt by INR161b (30%) in FY21 to INR353b (excl. lease liabilities).
* We estimate SAIL’s 4QFY21-end gross debt at INR380b, including lease liabilities.
* In 4QFY21, the company has reduced its gross debt by INR86.3b (23% QoQ).
Sales up 14% YoY in 4QFY21
* SAIL recorded its highest ever quarterly volumes of 4.27mt (provisional) in 4QFY21 (+14% YoY; +3% QoQ). As a result, it also achieved its highest ever annual sales of 14.87mt in FY21 (+4% YoY).
* Crude steel production rose 6% YoY / 4% QoQ to 4.55mt. Crude steel production stood at 15.21mt (down 6% YoY) due to COVID-led lockdowns.
Valuation and view
* We expect SAIL’s volumes to post a 9% CAGR to 17.5mt over FY21–23E, driven by improved demand and rising capacity utilization.
* We estimate SAIL’s net debt to decline by INR233b (INR56/sh) to INR305b (INR74/share) over FY20–23E – on the back of a 36% EBITDA CAGR to INR145b over FY20–22E.
* At CMP, the stock is trading at 4.5x FY22E EV/EBITDA and 0.5x P/B. We value the stock at 5x FY22E EV/EBITDA at INR104/share, implying target P/B of 0.8x (historical average of 0.7x). Reiterate Buy...
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