Steel Authority of India Ltd. (SAIL) is a PSU, fully integrated iron & steel maker, producing both basic and special steels for construction, engineering, power, railway, automotive and defence industries.
SAIL has 5 integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and IISCO while 3 special steel plants are located in Karnataka, Tamil Nadu and West Bengal with 653 dealers in 527 districts spread all over the country.
The company has joint venture power projects with NTPC as 50 : 50 JV for 314 MW captive power plants at Rourkela, Durapur and Bhilai while 50 : 50 JV with Damodar Valley for 302 MW power project and 1,880 tonne per hour steam generation at Bokaro.
To improve its self sufficiency, SAIL has entered into a 50 : 50 coal mining JV with Tata Steel to explore 4 coal blocks in India as also a JV with Manganese Ore India Ltd. for 31,000 TPA of Ferro Manganese and 70,000 TPA of Silico Manganese to be available by 2010 for producing 24 million MT of steel.
During FY 07, the company produced 12.26 million tonne of steel by operating at 114% capacity of which 3 million tonne was value added and special steels.
For FY 07 the total income of the company was at Rs.35,865 crores with EBITDA of Rs.10,966 crores, resulting into a margin of 30.58% with PBT of Rs.9,422 crores and PAT of Rs.6,202 crores, resulting in an EPS of Rs.15.
For 9 months ending 31-12-07 the total income was at Rs.27,662 crores with EBITDA of Rs.8,921 crores resulting into margin of 32.25% with PBT of Rs.7,804 crores and PAT of Rs.5.160 crores, giving an EPS of Rs.12.50 for the period.
For FY 08, EPS of the company is likely to be Rs.18 while for FY 09 the same would be close to Rs.24 in view of better realizations and strong growth expected in the steel consumption.
The company is planning to have production of 24 million tones of steel by 2010, for which capex of Rs.40,000 crores is planned.
The debt equity ratio of the company as at 30-06-07 was at 0.18 : 1. The net worth of the company as at 31-03-08 would be Rs.23,000 crores and hence the debt equity ratio of the company is not likely to exceed 0.60 : 1, which is considered very healthy for such a huge steel company.
SAIL presently has five iron ore mines which provides about 14 million tones of raw-materials to meet almost the total iron ore and about 30% of its flux (limestone and dolomite) requirement of the eastern sector steel plants. About 12 – 13 mt of coking coal is sourced from outside sources. Hence, rising cost of iron ore is not affecting its profitability, though rising cost of coal is a concern.
Of the present equity of Rs.4,130 crores, Government holds 85.82%; Banks, Mutual Funds, FIIs and Insurance Companies hold 11.75% while only 2.43% is being held by public. This is leaving very low floating stock.
The present market capitalization of the company is close to Rs.80,000 crores at current market price of Rs.190 per share. The present debt of the company at Rs.2,500 crores makes company virtually debt free, net off, net current asets.
The steel prices for flat and long products have been increased by about 8% in last fortnight and rose by about 22% since January 08. Still after this rise, the product is in short supply with good offtake. This is bound to improve the working of the company for March 08 quarter.
Share is presently ruling at Rs.190, which discounts its FY 09 EPS by about 8 times. The steel sector is likely to remain attractive at the current levels, as all the stocks have corrected by about 30% to 35% in the last couple of months.
Share at Rs.190 makes it an excellent buy with potential to rise by about 50% in the next 12 months.
by SP Tulsian
