Citigroup downgrades SAIL to 'neutral' from 'buy'

Citigroup has downgraded SAIL to 'Neutral' from 'Buy'. It has the highest iron ore integration (100%) relative to peers and environmental/forest clearances for iron ore mines received in FY11 helps secure reserves for expansions.

SAIL has a relatively strong balance sheet with gross debt equity expected to be 0.56x in FY12E, net debt of 0.3x, and a largely domestic market exposure as advantages. This relative advantage to its peers will remain even with a gradual increase in net debt-to-equity to 0.4x by FY14 despite SAIL taking on debt to fund its expansion.

SAIL's target to raise crude steel capacity from 13.8 m tpa to 21.4m tpa by FY15, should help with: lower average costs (more modernisation), improved labour productivity, and higher average realisations (value-added products, no sales of semis).