JPMorgan, Barclays cut SAIL’s target price; stock down 37% in 2013

NEW DELHI: JPMorgan remains ‘overweight’ on SAIL even though the company reported a step fall in its earnings for the quarter ended March 2013, but has lowered the price target from Rs 120 earlier to Rs 105, the global investment bank said in a report on Tuesday.

At 10:40 am, SAIL was trading 0.7 per cent higher at Rs 57. It hit a low of Rs 56.80 and a high of Rs 57.40 in trade today. The stock has been in a bit of pressure so far in the year 2013. It slipped over 37 per cent, as per data collected on June 03.

Last week SAIL reported a steep 71.68 per cent fall in its standalone net profit to Rs 446.53 crore for the quarter ended March 31, 2013 due to a slew of reasons including fall in sales, higher than expected employee costs and power costs.

The largest domestic steel producer had reported a net profit of Rs 1,576.98 crore in the corresponding quarter of 2011-12.

The global investment bank has also cut its EPS estimates by 20 per cent and 3 per cent for FY14 and FY15, respectively. JPMorgan believes that FY14 will be a transitional year for the company as the commissioning process comes through.

Another investment bank Barclays has an ‘underweight’ rating on the stock and has reduced its target price from Rs 67 earlier to Rs 61.

The company’s volumes declined 3.0 per cent to 3.2mn tonnes. The company’s realizations stood at Rs 38,008/tonne compared to Rs 40,598/tonne in 4QFY2012. EBITDA therefore decreased by 50.6 per cent YoY to Rs 924 cr and EBITDA margin contracted by 637 bps YoY to 7.6 per cent.

“We expect SAIL’s operational and financial performance to be impacted by inability to maintain/raise sales volumes amidst slower demand growth, higher employee costs, and delays/cost overruns in its brownfield expansion projects,” Angel Broking said in a report.

SAIL is on the verge of expanding its saleable steel production capacity from 12.5mn tonnes to 24.0mn tonnes by FY2015.

However, the current rich valuation discounts its anticipated volume growth over FY2012-FY2016E, said the Angel Broking report. The brokerage firm recommends ‘neutral’ view on the stock.