SAIL hits 2-year high, zooms 100% in 2 months on strong earnings outlook

Analysts at Edelweiss Broking expect SAIL's performance to improve further driven by realisation uptick, volume growth and iron ore sales providing an additional revenue stream

Shares of Steel Authority of India (SAIL) rose 5 per cent to hit an over two-year high of Rs 67.85 on the BSE in Wednesday's session amid expectations of further improvement in performance due to the realisation of uptick in the domestic market and progressively lower proportion of exports.

The stock of the state-owned company was trading at its highest level since November 2018. In the past two months, the share price of the stock has more-than-doubled after the company reported a consolidated net profit of Rs 437 crore in the July-September quarter (Q2FY21) on back of strong operational performance. It had posted a net loss of Rs 286 crore in the same quarter of previous fiscal and a loss of Rs 1,226 crore in the June quarter (Q1FY21). The company's consolidated revenue from operations grew 20 per cent to Rs 16,925 crore from Rs 14,128 crore in the year-ago quarter.

At present, SAIL, under the Ministry of Steel, is the country's largest steel maker having a total installed capacity of about 21 million tonne per annum (MTPA). The company has set up a target to more than double its capacity to 50 MTPA by 2030.

The management said the company is determined to perform better in future and is geared up to take all necessary actions to remain a world-class domestic steel producer towards building an Atmanirbhar Bharat.

Although steel demand in India may decrease in 2020 but in 2021 it is expected to be extremely strong on the back of government's infrastructure investments, production linked incentives, support for rural economy through infra development. Restarting of construction activities across India and recovery in the auto industry are also likely to support demand.

Analysts at Edelweiss Broking expect SAIL’s performance to improve further driven by realisation uptick, volume growth and iron ore sales providing additional revenue stream.

"We expect SAIL’s EBITDA to increase to Rs 5,000/t through to rest of FY21 as volume and realisations improve. In our view, volume uptick is the biggest mover for SAIL as the operating leverage benefit is higher compared to peers. Furthermore, being integrated on iron ore front, the company is insulated from further cost pressure. On leverage front as well, we expect respite as cash accretion is expected to reduce the debt level from the current level of Rs 54,400 crore," the brokerage firm said in a report.