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Worst in price – just normalised
operations should be enough at
current value
Action: Forget expansion, Buy for current operations
While we believe SAIL is definitely a play on capacity expansion and
modernisation over the next two to three years, at its current value, just
normalised operations should be enough to drive the stock’s performance.
With earnings disappointing during the last four to five quarters and the
lack of clarity surrounding the company’s expansion, the stock has started
to factor in current depressed earnings (on account of one-offs) for
perpetuity. We expect earnings to rebound from Q3FY12 onwards on
lower coking coal prices resolution of internal operational issues.
Catalyst: Lower coking coal prices and resolution of internal issues
In our view, the stock is amongst the most attractive global plays on higher
iron ore and lower coking coal prices. Earnings improvement from
Q3FY12 should be a key catalyst.
Valuations: Building in all problems to continue with no end in sight
At its current price, we believe the stock is building in all issues related to
earnings disappointment and expansion delays to continue with no end in
sight. We have valued the stock at 5x FY13F EV/EBITDA and added
CWIP less net debt to arrive at our TP of INR120 (from INR183 earlier).
The reduction in our TP is on account of the 25-30% cut to our FY12F
and FY13F earnings estimates, respectively, coupled with lower
valuation multiples.
We have delayed all expansion and modernisation benefits by one year
and now build in the benefits to start from FY14F and to be reflected
fully from FY15F onwards.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Worst in price – just normalised
operations should be enough at
current value
Action: Forget expansion, Buy for current operations
While we believe SAIL is definitely a play on capacity expansion and
modernisation over the next two to three years, at its current value, just
normalised operations should be enough to drive the stock’s performance.
With earnings disappointing during the last four to five quarters and the
lack of clarity surrounding the company’s expansion, the stock has started
to factor in current depressed earnings (on account of one-offs) for
perpetuity. We expect earnings to rebound from Q3FY12 onwards on
lower coking coal prices resolution of internal operational issues.
Catalyst: Lower coking coal prices and resolution of internal issues
In our view, the stock is amongst the most attractive global plays on higher
iron ore and lower coking coal prices. Earnings improvement from
Q3FY12 should be a key catalyst.
Valuations: Building in all problems to continue with no end in sight
At its current price, we believe the stock is building in all issues related to
earnings disappointment and expansion delays to continue with no end in
sight. We have valued the stock at 5x FY13F EV/EBITDA and added
CWIP less net debt to arrive at our TP of INR120 (from INR183 earlier).
The reduction in our TP is on account of the 25-30% cut to our FY12F
and FY13F earnings estimates, respectively, coupled with lower
valuation multiples.
We have delayed all expansion and modernisation benefits by one year
and now build in the benefits to start from FY14F and to be reflected
fully from FY15F onwards.
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