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Steady performance…..

SAIL reported an operationally steady set of numbers wherein EBITDA/tonne came in broadly in line with our estimate. For Q4FY21, EBITDA/tonne was at | 14145/tonne, broadly in line with our estimate of | 15000/tonne (Q3FY21 EBITDA/tonne was at | 12089/tonne). For Q4FY21, sales volume was at 4.35 million tonne (MT), up 16% YoY (our estimate: 4.27 MT). For Q4FY21, standalone operations reported topline of | 23286 crore (up 44% YoY, 17% QoQ), higher than our estimate of | 22354 crore. Standalone EBITDA for the quarter was at | 6153 crore (up 21% QoQ) vs. our estimate of | 6405 crore. For Q4FY21, EBITDA/tonne was at | 14145/tonne, broadly in line with our estimate of | 15000/tonne (Q3FY21 EBITDA/tonne was at | 12089/tonne). During the quarter there was an exceptional expense of | 166 crore. Ensuing standalone PAT for Q4FY21 was at | 3444 crore (our estimate: | 3659 crore).

Access to captive iron augurs well…

SAIL has iron ore mines in Chhattisgarh, Jharkhand and Odisha, which aids in meeting 100% of its iron ore requirements captively. Even on the expanded capacity, the company would be self-sufficient in meeting its iron ore requirements. Captive supply of iron ore aids in keeping SAIL’s overall raw material costs under check. Also, currently, the relatively firm trend in steel prices augurs well for SAIL. We model EBITDA/tonne of | 12000/tonne in FY22E & | 9000/tonne in FY23E (FY21 EBITDA/tonne was at | 8519/tonne).

Model sales volume of 17 MT for FY22E, 19 MT for FY23E…

For FY21, SAIL reported sales volume of 14.94 million tonnes (MT), up 5% YoY. Going forward also, over the next couple of years, we expect SAIL to report healthy growth in its sales volumes. We expect SAIL’s sales volume to grow at a CAGR of 13% in FY21-23E. We model sales volume of 17 MT in FY22E and 19 MT in FY23E.

Valuation & Outlook

SAIL has adopted a focused approach on improving its volume, improving its operational efficiencies, operating the facilities at optimum levels, deleveraging its balance-sheet, etc. In line with its focus on reducing the borrowings. SAIL has reduced its net debt by ~| 16200 crore in FY21. Going forward also, we expect SAIL’s net debt to further reduce by ~| 6800 crore, over the next couple of years. We model sales volume of 17 MT for FY22E and 19 MT for FY23E. We value the stock at 5.5x FY23E EV/EBITDA and arrive at a target price of | 160 (earlier | 130). We maintain our BUY recommendation on the stock.

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