Recommendation from Steel Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

STEEL AUTHORITY OF INDIA .:A REMARKABLE PERFORMANCE

HERE IS WHY
✓Largest steel manufacturing company
✓Strong financial performance
✓Book value higher than market value

Steel Authority of India Limited (SAIL) is the largest steel- making company in India and one of the seven Maharatnas of the country’s central public sector enterprises. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials. It manufactures and sells a broad range of steel products. As regards the financial outlook of this steel giant, the company took the benefit of rising demand post the lockdown and hit record sales volume and eventually set the highest ever net sales of ₹ 69,113.6 crore in FY21 compared to ₹ 61,664 crore in FY20.

That is a growth of nearly 12 per cent. It also recorded highest ever EBIDTA of ₹ 13,599.4 crore in FY21 as against ₹ 11,121.5 crore in the previous year. Improved operational performance led to growth of over 22.3 per cent. Also, PAT witnessed a jump of 91 per cent to ₹ 3,680.4 crore while it stood at ₹ 1,926.4 crore in FY20. This Maharatna has delivered strong profit growth of 24.61 per cent CAGR over the last five years. Renewed focus on cost reduction and productivity improvement continued during the year through process improvement and research and development efforts.

It also improved its liquidity position as the cash flows from operating activities went from negative ₹ (618) crore in FY20 to ₹ 23,430 crore in FY21. In Q3FY22, revenue grew by 27.28 per cent YoY to ₹ 25,246.99 crore from ₹ 19,835.71 crore in Q3FY21. On a sequential basis, the top-line was down by 5.89 per cent. PBIDT excluding other income was reported at ₹ 3,401.91 crore, down by 33.04 per cent YoY and the corresponding margin was reported at 13.47 per cent, contracting by 1,214 basis points YoY. PAT was reported at ₹ 1,347.3 crore, up by 8.09 per cent from ₹ 1,246.5 crore in the same quarter for the previous fiscal year.

The PAT margin stood at 5.34 per cent in Q3FY22, contracting from 6.28 per cent in Q3FY21. Some of the key ratios of the company are as follows: ROE stood at 8.47 per cent and ROCE was at 10.7 per cent. Also, it has a decent dividend yield of 6.53 per cent. The stock is trading at an attractive PE multiple of 3.01 times while the industry average is almost double at 5.92 times. A notable valuation metric, the company’s price-to-book value (PB) is at just 0.77 times which reflects that the book value of the company is greater than its market value. This scenario is positively looked upon by investors.

The scrip has debt-to-equity ratio of 0.83 times against the high of 1.36 times last year. The highlight of fiscal 2021 has been the company’s debt reduction from ₹ 51,481 crore to ₹ 35,350 crore. It had the best ever Q3 and 9M production of hot metal, crude steel and saleable steel. With the overall positive outlook in the economy and the announcements related to infrastructure sector in the Union Budget 2022 for increased spending, the performance is expected to be even better in the next 12-18 months’ period. By virtue of all these factors, we recommend our reader- investors to BUY this scrip.