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Emkay Global
SAIL (Buy)
Target ₹43
CMP: ₹34.25
Adjusting one-off items, SAIL reported better-than-estimated earnings in Q4. Adjusted EBITDA stood at ₹3,791/t, better than our estimate of ₹2,979/t. Demand from Railways shall keep its average NSR higher compared to other long steel players.
We note that several companies in our coverage have reported that there is a thrust on capex and completing several projects. This should also drive steel demand in H2. We believe SAIL will be a key beneficiary of government capex, especially in Railways.
Railways makes up about 60 per cent of debtors, which should pay in FY22 and help reduce debt. The sale of iron ore fines (old and new) will also help in deleveraging (likely from FY22). SAIL has almost completed its decade-long capex cycle. Volume growth should be new normal.
The stock is trading at 5.2x/4.1x our FY22/23 EV/EBITDA estimate. The stock appears at the bottom of P/B valuation at 0.3x our FY22 estimates. We upgrade to Buy, with a target price of ₹43 (from ₹37) at 5.5x FY22 EV/EBITDA estimate. Key risks include a further spread of Covid-19 and SAIL's inability to raise steel prices.
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