Street cheers SAIL’s capex plans, guidance – ET Infra


MUMBAI: Shares of Steel Authority of India (SAIL) saw their sharpest jump in three months Monday after its management guided for a 15% growth in sales volumes and lower costs for FY24 and set a target of nearly doubling annual output in eight years.

Shares rose more than 3% intraday before closing at ₹84.35 on the National Stock Exchange, up 2.7% from the previous close. Most analysts, though, have retained their ‘hold’ or ‘neutral’ rating for the shares as they believe that the current valuations factor in most positives for the company.

State-owned SAIL is among the largest steelmakers in India with the capacity to produce 19 million tonnes of steel each year. It has five integrated and three special steel plants in the country. Both its steel output of 18.3 million tonnes and sales volume of 16.3 million tonnes for FY23, were at an all-time high.

The management sees sales volumes for FY24 at 18.7 million tonnes, a growth of 15% on-year. It also sees the benefits of lower prices of coking coal flowing in from the September quarter onwards, even though this cost is likely to rise by ₹2,500 to ₹28,000 per tonne in the June quarter because of the company‘s inventory.

SAIL will also spend ₹1 lakh crore for debottlenecking and growth capital expenditure to reach 35 million tonnes, of which ₹6,500 crore will be spent in FY24, and ₹5,000-5,500 crore will be spent in FY25.

While the capital expenditure is expected to keep the debt cycle at an elevated level, analysts believe that the debt is likely to moderate this year with a release in working capital and softer coking coal prices, and can be used to fund the company’s next leg of expansion.

“While we are cautious on SAIL‘s aggressive capacity expansion plan to reach 35 MT per annum by FY32, in the near term, the company is expected to benefit from lower coking coal price and volume uptick,” said ICICI Securities, which upgraded its rating to ‘add’ from ‘reduce’ earlier, raising target price by over 19% to ₹92.

Antique Stock Broking, which also has a target price of ₹92 for the shares but with a ‘hold’ rating, said that the rising demand for steel in the domestic market and a steady sales volume could help in offsetting the temporary rise in coal costs in the June quarter.

SAIL reported its earnings last week, and its sales, operating profit and profit fell short of analysts’ estimates, largely on account of weaker realisations. The company made an operating profit of ₹6,200 on every tonne of steel sold in the March quarter.

Kotak Institutional Equities sees this falling to ₹5,009 per tonne in FY24 and has cut its target price for the shares by 9% to ₹50, maintaining its ‘sell’ rating.

  • Published On May 31, 2023 at 08:28 AM IST

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