SAIL (Steel Authority of India Limited ) is an India based steel making company. SAIL’s business segments include 5 integrated steel plants and 3 alloy steel plants, which are manufacturing units. It’s principal products include hot rolled coils, plates and rails.
During the fiscal year ended March 31, 2011, the Company’s main steel plants produced 2,60,829 tons of pig iron; 1,34,53,059 tons of crude steel, and 1,23,24,973 tones of saleable steel.
During fiscal 2011, its alloy steels plants produced 2,341 tons of pig iron; 3,08,733 tons of crude steel, and 5,50,238 tones of saleable steel. During fiscal 2011, SAIL also produced 1.49 Crore tons of hot metal and 1.38 Crore tons of crude steel. During fiscal 2011, SAIL produced 1.05 Crore tons of finished steel. As of April 1, 2011, SAIL had a network of 2,653 dealers spread over 637 districts. The Company’s subsidiary is The Maharashtra Elektrosmelt Limited (MEL).
SAIL is one of the leading steel manufacturers in India and is ranked 21st largest steel producer in the world. SAIL is a fully integrated iron and steel manufacturer with captive iron ore mines. It is one of the largest producers of Iron ore in India. The captive mines assure the supply of Iron ore to the company at a lower cost.
The company makes both, basic and special types of steel. The company’s products find their application in domestic construction, power, railway, engineering, automotive and defense industries.
The company also caters to the requirements of the exports market. SAIL operates through eight manufacturing units in India. Amongst all the plants the Bhilai steel plant accounts for a major chunk of revenues and is engaged in the manufacturing of semi-finished products, Flat products and Long Products.
Investment Arguments
# Business Scalability through Huge Capex
# Increasing Number of Touch Points
# Short Term Pain but Long Term Gain
# Consistent Dividend Player
# Strong Balance Sheet
ValuationWe expect all short term negativity is already discounted by the market and current price is attractive for long term investors.
We use EV/EBITDA as valuation metric for the steel companies given the high debt-equity levels. SAIL has traditionally traded at a discount to both Tata Steel and JSW Steel based on its history, status as a government company and lower rate of volume growth.
Our Rs.130 target price is based on FY13 EV/EBITDA of 6.2x, SAIL's target EV/EBITDA multiple is slightly lower than its 3-year average of 7x.
Review By Anand Rathi
A. K. PrabhakarSenior Vice President - Equity Research
akprabhakar@bloomberg.net
Victoria House. Ground Floor, Kamala Mill Compound Opp. Bombay Dyeing Gate, Pandurang Budhakar Marg, Lower Parel Mumbai - 400 013.
FaxNo: +91 22 6626 6544 | Tel No: +91 22 6626 6666 | Direct: +91 22 6626 6608 | URL: www.rathi.com
During the fiscal year ended March 31, 2011, the Company’s main steel plants produced 2,60,829 tons of pig iron; 1,34,53,059 tons of crude steel, and 1,23,24,973 tones of saleable steel.
During fiscal 2011, its alloy steels plants produced 2,341 tons of pig iron; 3,08,733 tons of crude steel, and 5,50,238 tones of saleable steel. During fiscal 2011, SAIL also produced 1.49 Crore tons of hot metal and 1.38 Crore tons of crude steel. During fiscal 2011, SAIL produced 1.05 Crore tons of finished steel. As of April 1, 2011, SAIL had a network of 2,653 dealers spread over 637 districts. The Company’s subsidiary is The Maharashtra Elektrosmelt Limited (MEL).
SAIL is one of the leading steel manufacturers in India and is ranked 21st largest steel producer in the world. SAIL is a fully integrated iron and steel manufacturer with captive iron ore mines. It is one of the largest producers of Iron ore in India. The captive mines assure the supply of Iron ore to the company at a lower cost.
The company makes both, basic and special types of steel. The company’s products find their application in domestic construction, power, railway, engineering, automotive and defense industries.
The company also caters to the requirements of the exports market. SAIL operates through eight manufacturing units in India. Amongst all the plants the Bhilai steel plant accounts for a major chunk of revenues and is engaged in the manufacturing of semi-finished products, Flat products and Long Products.
Investment Arguments
# Business Scalability through Huge Capex
# Increasing Number of Touch Points
# Short Term Pain but Long Term Gain
# Consistent Dividend Player
# Strong Balance Sheet
ValuationWe expect all short term negativity is already discounted by the market and current price is attractive for long term investors.
We use EV/EBITDA as valuation metric for the steel companies given the high debt-equity levels. SAIL has traditionally traded at a discount to both Tata Steel and JSW Steel based on its history, status as a government company and lower rate of volume growth.
Our Rs.130 target price is based on FY13 EV/EBITDA of 6.2x, SAIL's target EV/EBITDA multiple is slightly lower than its 3-year average of 7x.
Review By Anand Rathi
A. K. PrabhakarSenior Vice President - Equity Research
akprabhakar@bloomberg.net
Victoria House. Ground Floor, Kamala Mill Compound Opp. Bombay Dyeing Gate, Pandurang Budhakar Marg, Lower Parel Mumbai - 400 013.
FaxNo: +91 22 6626 6544 | Tel No: +91 22 6626 6666 | Direct: +91 22 6626 6608 | URL: www.rathi.com
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