SAIL OFS subscribed 25%; stock off 4-year lows

NEW DELHI: SAIL recouped some of its morning losses of over 1 per cent in early trade on Friday and is off from its four year low of Rs 63.10, as the company launched its one-day offer-for-sale ( OFS).


SAIL OFS got bids for 6.01 crore shares compared to 24 crore shares on offer as of 11:05 am. The OFS is already subscribed 25 per cent at an indicative bid price of Rs 63 per share.

The government plans to sell 5.82 per cent of its stake in the steel major, to raise a minimum of Rs 1514 crore. The government has set the floor price at Rs 63 a piece for the auction.

Shares of SAIL have been under pressure in the year 2013 and have already corrected nearly 30 per cent so far in the calendar year hit by weak demand for steel across the globe.

Along with weak demand, reduced infrastructure spending and abysmally low sales figures in the auto sector have affected demand for both long and flat steel.

For the third quarter ended December 31, 2012, SAIL reported a 23 per cent decline in net profit at Rs 484 crore from the year-ago period mainly due to lower net sales realisation amid subdued market conditions.

Steel Authority of India Ltd is the largest steel producer in India, with 20% market share. The country's largest steel producer has a cash balance of over Rs 6,000 crore.

Brokerage Corner:

Angel Broking recommends ‘Avoid’

The brokerage firm expects SAIL’s operational and financial performance to remain weak during FY2014 due to its inability to maintain/raise sales volumes amidst slower steel demand in India; higher fixed costs, and delays/cost overruns.

SAIL is on the verge of expanding its saleable steel production capacity from 12.5mn tonne to 24.0mn tonne by FY2015. However, the brokerage firm is of the view that that there is still time to play the volume growth story of SAIL.

Moreover, the stock is expensively valued at the offer-for-sale (OFS) floor price of Rs 63 (7.2x FY2015E EV/EBITDA).

Angel Broking recommends investors to ‘Avoid’ subscribing to SAIL OFS.

Microsec Capital recommends ‘Subscribe’

SAIL’s current capacity of 13MTPA is vertically integrated from mines to finished steel and is spread across four plants in the mineral rich belt of Chhattisgarh, Orissa and Jharkhand.

The brokerage firm recommends a ‘Subscribe’ to the stock at the floor price of Rs 63 per share. The stock is trading at attractive valuations as compared to its domestic peers, which possess an average P/E of 13.6x.

Microsec believes that risk reward is very favorable at current valuations with key triggers being company planning a capex of Rs 70000 cr for doubling the capacity from 13MT to 24MT of which major expansion of Rs 62000 cr is likely to be completed by FY14e.

Additionally hike in steel prices leading to improved realizations, improvement in steel demand scenario and softening of coking coal prices all support our decision.